Speaker：Dr. 施展 (Zhan Shi)

Title：Corporate Debt Illiquidity and Credit Risk: A Tale of Two Agency Conflicts

Schedule:  May 29, Wed 10:00-11:30 AM

Location: 诚明楼（Chengming Hall） RM 315

Introduction: 施展，博士，清华大学五道口金融学院副教授。施展于2014年毕业于美国宾夕法尼亚州立大学 Smeal 商学院，获得金融学博士学位。在此之前，他获得了复旦大学的统计学学士学位, 他曾经在俄亥俄州立大学金融系，担任访问助理教授。施展的研究领域是固定收益，市场微观结构，宏观金融，动态公司金融、金融科技。他关于时变模糊性下资产定价的研究曾获得 Western Finance Association 2014年年会的最佳博士生论文奖。研究成果发表于《经济研究》，《金融研究》，Journal of Finance，Journal of Financial Economics，Management Science，Review of Finance，Annual Review of Financial Economics。

Abstract: The corporate bond market plummeted and credit risk spiked in the COVID-19 pandemic, until the Federal Reserve’s interventions greatly eased the liquidity crisis. In this paper, we revisit the impact of debt market liquidity on corporate credit risk by considering its role in a firm’s investment decision. Specifically, we embed an illiquid secondary debt market into a dynamic model of agency conflicts between debt holders and shareholders. Our model shows that debt illiquidity increases credit risk mainly through the risk-shifting channel rather than the debt overhang channel, and this effect is more pronounced for firms with longer average debt maturity. Based on our calibration results, the liquidity improvement provided by the Fed’s credit facilities during the pandemic reduces the aggregate CDS spread by around 20%, which is consistent with the data. We test the empirical plausibility of our model implications with a sample of individual corporate bonds and find that they are consistent with the data. Overall, our findings reveal the dark side of the externality of debt market frictions on the firm’s riskiness.