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Default Risk, Credit Market Liquidity, and Corporate Events

Shohfi, Thomas (2015) Default Risk, Credit Market Liquidity, and Corporate Events. Doctoral Dissertation, University of Pittsburgh. (Unpublished)

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Prior literature examining bond excess returns around corporate events assumes that creditor wealth effects are driven by changes in the default risk of the firm. I revisit these bond event studies using data from 2002 through 2014, explore intra-firm individual bond reactions, and refine the analyses using changes in credit default swap (CDS) spreads. CDS spreads (price-weighted firm aggregate cash bond prices) show small increases (large increases) in default risk of acquiring firms, no change (large increases) for common equity repurchasing firms, and large decreases (no change) for seasoned equity offering (SEO) firms. I isolate liquidity effects around these events by examining changes in the CDS-bond basis and contrast with introduction of the “basis credit ratio” (BCR) comparing basis to cash bond spread changes. Firm aggregate median BCRs show variation in the CDS-bond basis contributes between 50.8% and 69.6% of changes in bond spreads, suggesting that credit market liquidity risk around these corporate events is economically large relative to default risk.


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Item Type: University of Pittsburgh ETD
Status: Unpublished
CreatorsEmailPitt UsernameORCID
Shohfi, Thomastshohfi@katz.pitt.eduTDS27
ETD Committee:
TitleMemberEmail AddressPitt UsernameORCID
Committee ChairDenis, Dianediane@katz.pitt.eduDKDENIS
Committee MemberDenis, Daviddjdenis@katz.pitt.eduDJDENIS
Committee MemberMoeller, Sarasbmoeller@katz.pitt.eduSBM12
Committee MemberPanayides, Mariosmpanayides@katz.pitt.eduMARIOSP
Committee MemberGlover,
Date: 30 September 2015
Date Type: Publication
Defense Date: 29 June 2015
Approval Date: 30 September 2015
Submission Date: 7 July 2015
Access Restriction: No restriction; Release the ETD for access worldwide immediately.
Number of Pages: 93
Institution: University of Pittsburgh
Schools and Programs: Joseph M. Katz Graduate School of Business > Business Administration
Degree: PhD - Doctor of Philosophy
Thesis Type: Doctoral Dissertation
Refereed: Yes
Uncontrolled Keywords: Acquisitions, CDS-Bond Basis, Corporate Bonds, Credit Default Swaps, Credit Ratings, Default Risk, Liquidity, Repurchases, SEOs
Related URLs:
Date Deposited: 30 Sep 2015 14:39
Last Modified: 19 Dec 2016 14:42


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