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

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

Journal of Empirical Finance, 2014, vol. 29, issue C, 266-280

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.

Keywords: Production efficiency uncertainty; Credit risk; Structural form credit model; Asset volatility; Bond yield spread (search for similar items in EconPapers)
JEL-codes: D24 G12 M40 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:29:y:2014:i:c:p:266-280

DOI: 10.1016/j.jempfin.2014.08.003

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