The predictive power of structural models of corporate debt pricing
Autor(a) principal: | |
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Data de Publicação: | 2011 |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.3/4968 |
Resumo: | This paper tests empirically the performance of three structural models of corporate bond pricing: those of Merton (1974), Leland (1994) and Fan and Sundaresan (2000). We show that both Merton and Leland models overestimate bond prices while Fan and Sundaresan reveals an extremely good performance. When considering the prediction of credit spreads, the three models underestimate market spreads but, again, Fan and Sundaresan has a better performance. We find a rating, maturity, asset volatility and sector effect in the prediction power, as the models underestimate less the spreads of riskier firms and of bonds with better rating quality and longer maturity. Moreover, we find that spread errors are systematically related with some bond and firm’s specific variables, as well as term structure variables. Finally, an econometric model developed for equityholders bargaining power shows that it depends on proportional liquidation costs, firm’s size and distance to default. |
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The predictive power of structural models of corporate debt pricingCorporate Debt ValuationEmpirical Credit SpreadsStructural ModelsThis paper tests empirically the performance of three structural models of corporate bond pricing: those of Merton (1974), Leland (1994) and Fan and Sundaresan (2000). We show that both Merton and Leland models overestimate bond prices while Fan and Sundaresan reveals an extremely good performance. When considering the prediction of credit spreads, the three models underestimate market spreads but, again, Fan and Sundaresan has a better performance. We find a rating, maturity, asset volatility and sector effect in the prediction power, as the models underestimate less the spreads of riskier firms and of bonds with better rating quality and longer maturity. Moreover, we find that spread errors are systematically related with some bond and firm’s specific variables, as well as term structure variables. Finally, an econometric model developed for equityholders bargaining power shows that it depends on proportional liquidation costs, firm’s size and distance to default.Universidade dos AçoresRepositório da Universidade dos AçoresTeixeira, João2019-01-24T17:06:18Z2011-042011-04-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.3/4968engTeixeira, João C. A. (2011). The predictive power of structural models of corporate debt pricing, “Working Paper Series” nº 11/11, 44 pp.. Ponta Delgada: Universidade dos Açores, CEEAplA-A.info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2022-12-20T14:33:14Zoai:repositorio.uac.pt:10400.3/4968Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T16:27:16.756625Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
The predictive power of structural models of corporate debt pricing |
title |
The predictive power of structural models of corporate debt pricing |
spellingShingle |
The predictive power of structural models of corporate debt pricing Teixeira, João Corporate Debt Valuation Empirical Credit Spreads Structural Models |
title_short |
The predictive power of structural models of corporate debt pricing |
title_full |
The predictive power of structural models of corporate debt pricing |
title_fullStr |
The predictive power of structural models of corporate debt pricing |
title_full_unstemmed |
The predictive power of structural models of corporate debt pricing |
title_sort |
The predictive power of structural models of corporate debt pricing |
author |
Teixeira, João |
author_facet |
Teixeira, João |
author_role |
author |
dc.contributor.none.fl_str_mv |
Repositório da Universidade dos Açores |
dc.contributor.author.fl_str_mv |
Teixeira, João |
dc.subject.por.fl_str_mv |
Corporate Debt Valuation Empirical Credit Spreads Structural Models |
topic |
Corporate Debt Valuation Empirical Credit Spreads Structural Models |
description |
This paper tests empirically the performance of three structural models of corporate bond pricing: those of Merton (1974), Leland (1994) and Fan and Sundaresan (2000). We show that both Merton and Leland models overestimate bond prices while Fan and Sundaresan reveals an extremely good performance. When considering the prediction of credit spreads, the three models underestimate market spreads but, again, Fan and Sundaresan has a better performance. We find a rating, maturity, asset volatility and sector effect in the prediction power, as the models underestimate less the spreads of riskier firms and of bonds with better rating quality and longer maturity. Moreover, we find that spread errors are systematically related with some bond and firm’s specific variables, as well as term structure variables. Finally, an econometric model developed for equityholders bargaining power shows that it depends on proportional liquidation costs, firm’s size and distance to default. |
publishDate |
2011 |
dc.date.none.fl_str_mv |
2011-04 2011-04-01T00:00:00Z 2019-01-24T17:06:18Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.3/4968 |
url |
http://hdl.handle.net/10400.3/4968 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Teixeira, João C. A. (2011). The predictive power of structural models of corporate debt pricing, “Working Paper Series” nº 11/11, 44 pp.. Ponta Delgada: Universidade dos Açores, CEEAplA-A. |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Universidade dos Açores |
publisher.none.fl_str_mv |
Universidade dos Açores |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
instname_str |
Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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1799130728216133632 |