Marc Arnold
Title
Prof. Dr.
Last Name
Arnold
First name
Marc
Email
marc.arnold@unisg.ch
ORCID
Phone
+41 71 224 7413
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Item type:Publication, Growth Options, Macroeconomic Conditions and the Cross-Section of Credit RiskThis paper develops a structural equilibrium model with intertemporal macroeconomic risk, incorporating the fact that firms are heterogeneous in their asset composition. Compared to firms that are mainly composed of invested assets, firms with growth options have higher costs of debt because they are more volatile and have a greater tendency to default during recession when marginal utility is high and recovery rates are low. Our model matches empirical facts regarding credit spreads, default probabilities, leverage ratios, equity premiums, and investment clustering. Importantly, it also makes predictions about the cross-section of all these features.Type:journal articleJournal:Journal of Financial EconomicsVolume:107Issue:2Scopus© Citations 45