Credit Ratings, Collateral, and Loan Characteristics: Implications for Yield

Published

Journal Article

This article studies how collateral affects bond yields. Using a large data set of public bonds, we document that collateralized debt has higher yield than general debt, after controlling for credit rating. Our model of agency problems between managers and claim holders explains this puzzling result by recognizing imperfections in the rating process. We test the model's implications. Consistent with our model and in results new to the literature, we find the yield differential between secured and unsecured debt, after controlling for credit rating, is larger for low credit rating, nonmortgage assets, longer maturity, and with proxies for lower levels of monitoring.

Full Text

Duke Authors

Cited Authors

  • John, K; Lynch, AW; Puri, M

Published Date

  • July 1, 2003

Published In

Volume / Issue

  • 76 / 3

Start / End Page

  • 371 - 409

International Standard Serial Number (ISSN)

  • 0021-9398

Digital Object Identifier (DOI)

  • 10.1086/375252

Citation Source

  • Scopus