Temporal Resolution of Uncertainty and Corporate Debt Yield: An Empirical Investigation.
November, 1999
Alexander Reisz
ABSTRACT
This paper is intended to measure Reisz's (1999) empirical implication about bond yields against data: yields demanded
on corporate debt should be higher the later the uncertainty facing the firm is resolved. We conduct our study
looking at new bond issues made by industrial corporations between 1987 and 1996. Based on this sample, we find
strong evidence that firms with more delayed resolution of uncertainty offer higher yields once default and overall
risks have been controlled for. We also find that the maturity premium on corporate bonds is monotonic in the pattern
of Temporal Resolution of Uncertainty (TRU) facing the firm. Both results are mitigated for firms whose managers
enjoy fewer information asymmetries. We also find that firms with more delayed TRU rely less heavily on debt and
tend to issue shorter-term bonds.
Subject: Corporate Finance/Capital Structure and Dividend Policy, Event Study Analysis
Classification: Empirical
Reisz: (212) 998-0344 areisz@stern.nyu.edu
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