Personal Taxes, Endogenous Default, and Corporate Bond Yield Spreads

• Main Authors: Liu, Sheen X., Qi, Howard, WU, Chunchi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2006
• Subjects: structural approach; endogenous default; personal taxes; yield spread; risk neutrality; Corporate Finance; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/784; https://ink.library.smu.edu.sg/context/lkcsb_research/article/1783/viewcontent/WuCC2006mnscPersonalTaxes_pub.pdf
• Institution: Singapore Management University

Term structure models have often been criticized for failing to explain satisfactorily the yield spread between corporate and Treasury bonds. A potential problem is that the personal tax effect is ignored in these models. In this paper, we employ a structural model to investigate the role of persona...