Distress risk premia in expected stock and bond returns

Andrew Jianzhong Zhang

Journal of Banking & Finance, 2012, vol. 36, issue 1, 225-238

Abstract: Prior studies find that shareholders’ strategic actions over debtholders are significant for stock prices but not for bond prices. I find that for firms with private and public debt, strategic default has no significant effect on distress risk premia in expected stock or bond returns, suggesting that the dispersion of bondholders greatly weakens the shareholder advantage effect. The shareholder advantage effect on stock prices is only significant for firms with only private debt and to some degree affected by the dispersion of stockholders and complexity in capital structure. Overall, renegotiation friction helps explain the cross-sectional implications of strategic default for stock and bond prices.

Keywords: Distress risk premium; Strategic default; Shareholder advantage effect (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:1:p:225-238

DOI: 10.1016/j.jbankfin.2011.07.007

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