Credit Spreads, Debt Maturity and Assets Other than Those Included in Book Value

53 Pages Posted: 15 Jun 2018

See all articles by Peter D. Easton

Peter D. Easton

University of Notre Dame - Department of Accountancy

Mary Hill

Kennesaw State University

Gary K. Taylor

University of Alabama - Culverhouse College of Commerce & Business Administration

Date Written: April 27, 2018

Abstract

Arora et al. (2014) provide evidence that the lack of precision in measurement of financial (i.e., level 1, 2, or 3) assets on the balance sheet of financial institutions appears to have affected short-term credit spreads more than long-term credit spreads during the global financial crisis (2007 to 2009). We extend their analysis by investigating the association between all firm assets not recorded on the balance sheet (unrecorded assets) and perceived default risks. We provide evidence that unrecorded assets are negatively associated with long-term credit default swap spreads (i.e., lower perceived default risk in the long-term) and positively associated with short-term credit default swap spreads (i.e., higher perceived default risk in the short-term). We attribute our findings to asset measurement issues and show that a stronger information environment may mitigate these issues for short-term default risk. Our evidence suggests that the relation between unrecorded assets and perceived default risk is context specific.

Suggested Citation

Easton, Peter D. and Hill, Mary and Taylor, Gary Kenneth, Credit Spreads, Debt Maturity and Assets Other than Those Included in Book Value (April 27, 2018). Available at SSRN: https://ssrn.com/abstract=3184823 or http://dx.doi.org/10.2139/ssrn.3184823

Peter D. Easton (Contact Author)

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-6096 (Phone)
574-631-5127 (Fax)

Mary Hill

Kennesaw State University ( email )

1000 Chastain Rd
Kennesaw, GA 30144
United States

Gary Kenneth Taylor

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Box 870223
Dept. of Accounting
Tuscaloosa, AL 35487-0223
United States

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