Production efficiency uncertainty and corporate credit risk: Structural form credit model perspectives

Tsung-Kang Chen*, Hsien Hsing Liao, Wei Lun Chen

*Corresponding author for this work

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

This study investigates the effect of production efficiency uncertainty (PEU) on firm credit risk from structural form credit model perspectives (e.g. asset volatility) by employing 4376 American manufacturing firms' bond observations from the year 1997 to 2008. We find that PEU is positively related to firm credit risk when controlling for well-known credit risk determinant variables. We also find that booming economic conditions weaken the PEU effect. Finally, our empirical results are robust for the firm-fixed effect issue and the minimum required observations in estimating production efficiency.

Original languageEnglish
Pages (from-to)266-280
Number of pages15
JournalJournal of Empirical Finance
Volume29
DOIs
StatePublished - 1 Dec 2014

Keywords

  • Asset volatility
  • Bond yield spread
  • Credit risk
  • Production efficiency uncertainty
  • Structural form credit model

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