Internal liquidity risk in corporate bond yield spreads

Tsung-Kang Chen, Hsien Hsing Liao*, Pei Ling Tsai

*Corresponding author for this work

Research output: Contribution to journalArticle

32 Scopus citations

Abstract

The recent global financial crisis reveals the important role of internal liquidity risk in corporate credit risk. However, few existing studies investigate its effects on bond yield spreads. Panel data for the period from year 1993 through 2008 show that corporate internal liquidity risk significantly impacts bond yield spreads (and changes) when controlling for well-known bond yield determinant variables, traditional accounting measures of corporate debt servicing ability, cash flow volatility, credit ratings, and state variables. This finding indicates that internal liquidity risk should therefore be incorporated into bond yield spread modeling.

Original languageEnglish
Pages (from-to)978-987
Number of pages10
JournalJournal of Banking and Finance
Volume35
Issue number4
DOIs
StatePublished - 1 Apr 2011

Keywords

  • Bond yield spreads
  • Credit risk
  • Internal liquidity risk

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