Anchoring on Credit Spreads

Casey Dougal, Joseph Engelberg, Christopher A. Parsons and Edward D. van Wesep

Journal of Finance, 2015, vol. 70, issue 3, 1039-1080

Abstract: type="main">

This paper documents that the path of credit spreads since a firm's last loan influences the level at which it can currently borrow. If spreads have moved in the firm's favor (i.e., declined), it is charged a higher interest rate than is justified by current fundamentals, whereas if spreads have moved to the firm's detriment, it is charged a lower rate. We evaluate several possible explanations for this finding, and conclude that anchoring to past deal terms is most plausible.

Date: 2015
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