Unobserved Heterogeneity and the Term-Structure of Default

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

Abstract

This paper estimates the conditional hazard baseline (term-structure) of the hazard rate to default at the time of bonds' issuance by using two hazard models-one ignoring and another allowing unobserved heterogeneity (UH) in the hazard rate. Following Diamond (1989) one can predict a declining hazard rate to default due to adverse selection and moral hazard. After controlling for UH caused by adverse selection and time-series shocks, the hazard rate shows to be increasing over time and hence the moral hazard effect cannot be confirmed.

Original languageEnglish
Title of host publicationIssues in Corporate Governance and Finance
EditorsMark Hirschey, Kose John, Anil Makhija
Pages311-344
Number of pages34
DOIs
StatePublished - 23 Aug 2007

Publication series

NameAdvances in Financial Economics
Volume12
ISSN (Print)1569-3732

Fingerprint

Dive into the research topics of 'Unobserved Heterogeneity and the Term-Structure of Default'. Together they form a unique fingerprint.

Cite this