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The information sensitivity of debt in good and bad times

Emanuele Brancati and Marco Macchiavelli

Journal of Financial Economics, 2019, vol. 133, issue 1, 99-112

Abstract: We empirically show the dynamics of information production and information sensitivity of bank debt around the Great Recession. As more precise information is produced at the onset of the crisis, bank debt becomes informationally sensitive, along two separate dimensions. First, precise information amplifies the effect of market expectations on default risk; second, for banks that are already expected to perform poorly, more precise information further increases default risk. Both effects are muted in good times. Overall, our findings are consistent with information-based models of financial crises.

Keywords: Financial crisis; CDS spreads; Information sensitivity (search for similar items in EconPapers)
JEL-codes: D83 G01 G21 (search for similar items in EconPapers)
Date: 2019
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