Their findings indicate that the default component does account for the majority of credit spread across all credit ratings. There was, however, also a significant non-default component found for every firm in the study. The study's findings showed little evidence for this non-default component being attributable to varying tax rates, but did show evidence for a strong relation to measures of corporate bond illiquidity.
This study is published in the October issue of The Journal of Finance. Media wishing to receive a PDF of this article please contact journalnews@bos.blackwellpublishing.net
The Journal of Finance publishes leading research across all the major fields of financial research. It is the most widely cited academic journal on finance. For more information on the journal and the American Finance Association, visit www.afajof.org
Francis Longstaff is at the UCLA Anderson School. Dr. Longstaff is available for media questions and interviews.