Information Uncertainty, Information Asymmetry and Corporate Bond Yield Spreads
55 Pages Posted: 18 Mar 2009
Date Written: March 17, 2009
This study examines the effects of information uncertainty and information asymmetry on corporate bond yield spreads using American bond data from year 2001 to 2006. Empirical results show that corporate bond investors charge a significant risk premium on both information uncertainty and information asymmetry when controlling for well-known variables. The results are robust even when additionally controlling for corporate credit rating. Results also reveal that non-accounting related factors of information uncertainty and information asymmetry are more important determinants for bond yield spreads than an accounting one. Moreover, information uncertainty and information asymmetry help structural credit models in explaining yield spreads of bonds with short maturities.
Keywords: Information uncertainty, Information asymmetry, Yield spreads
JEL Classification: G14, G12
Suggested Citation: Suggested Citation