A unified model of distress risk puzzles

• 成果类型: Article
• 署名作者: Chen, Zhiyao; Hackbarth, Dirk; Strebulaev, Ilya A.
• 署名单位: Lingnan University; Boston University; Stanford University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.10.001
• 发表日期: 2022
• 页码: 357-384
• 关键词: Distress risk premium; Failure probability; Endogenous debt financing; Endogenous distress; financial leverage

摘要

We document that (i) debt-to-equity ratios and levered equity betas negatively covary with the market risk premium in distressed firms; (ii) the negative covariance generates negative alphas among those firms. We build a dynamic credit risk model to understand the negative covariance between equity betas and the market risk premium, via endogenous and dynamic debt financing over the business cycles. Because of endogenous debt financing and distress, our model naturally connects the negative failure probability-return relation to the positive distress risk premium-return relation.(c) 2022 Elsevier B.V. All rights reserved.