Temporal Resolution of Uncertainty and Corporate Debt Yields: an Empirical Investigation

Alexander Reisz

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: This paper is intended to measure Reisz's (1999) empirical implication about bond yields against data: yields demanded on corporate debt should be higher the later the uncertainty facing the firm is resolved. We conduct our study looking at new bond issues made by industrial corporations between 1987 and 1996. Based on this sample, we find strong evidence that firms with more delayed resolution of uncertainty offer higher yields once default and overall risks have been controlled for. We also find that the maturity premium on corporate bonds is monotonic in the pattern of Temporal Resolution of Uncertainty (TRU) facing the firm. Both results are mitigated for firms whose managers enjoy fewer information asymmetries. We also find that firms with more delayed TRU rely less heavily on debt and tend to issue shorter-term bonds.

Date: 1999-11
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Persistent link: https://EconPapers.repec.org/RePEc:fth:nystfi:99-043

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