Abstract
Why do credit spreads explain firm investment better than equity volatility does?In a standard corporate finance setting, this can be explained as a consequence ofcredit spreads andassetvolatility having unambiguous relationships with investment,whileequityvolatility sends a mixed signal: Elevated volatility raises the option valueof equity and increases investment for financially sound firms, but it exacerbates debtoverhang and decreases investment for firms close to default. Overall, our study clarifiesthe structural and empirical relationships between investment, leverage, credit spreads,volatility, and Tobin’sq
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Organizers: Robert Richmond (rjr10@stern.nyu.edu) and Arpit Gupta (agupta3@stern.nyu.edu)
NYU affiliates interested in attending should contact Lindsay Anderson
For more information please visit the Stern Wednesday Finance Seminar Website