Vanishing Contagion Spreads

2021 ◽  
Author(s):  
Diogo Duarte ◽  
Rodolfo Prieto ◽  
Marcel Rindisbacher ◽  
Yuri F. Saporito
Keyword(s):  
Incomplete Information ◽  
Cash Flow ◽  
Balance Sheet ◽  
Credit Spreads ◽  
Jump Size ◽  
Production Economies ◽  
Cash Flow Risk ◽  
Number Of Firms ◽  
Jump Sizes

We study default in a multifirm equilibrium setting with incomplete information. Defaults are consistent with the firm’s balance sheet and aggregation. We show that the endogenous volatility and jump size of debt and equity generated by other firms’ shocks vanish as the number of firms in the economy increases. As a result, credit spreads depend asymptotically only on the firms’ own cash flow risk. Our vanishing contagion spread result calls into question recent findings based on production economies, in which quantities of risk (volatilities and jump sizes of securities) are specified exogenously, that attribute credit spreads mostly to contagion. This paper was accepted by Kay Giesecke, finance.

Rating Agency Adjustments to GAAP Financial Statements and Their Effect on Ratings and Credit Spreads

2014 ◽  
Vol 90 (2) ◽  
pp. 641-674 ◽  
Author(s):  
Pepa Kraft
Keyword(s):  
Default Risk ◽  
Credit Rating ◽  
Credit Ratings ◽  
Balance Sheet ◽  
Financial Statements ◽  
Financial Statement ◽  
Credit Spread ◽  
Credit Spreads ◽  
Term Structures ◽  
Interest Expense

ABSTRACT I examine a dataset of both quantitative (hard) adjustments to firms' reported U.S. GAAP financial statement numbers and qualitative (soft) adjustments to firms' credit ratings that Moody's develops and uses in its credit rating process. I first document differences between firms' reported and Moody's adjusted numbers that are both large and frequent across firms. For example, primarily because of upward adjustments to interest expense and debt attributable to firms' off-balance sheet debt, on average, adjusted coverage (cash flow-to-debt) ratios are 27 percent (8 percent) lower and adjusted leverage ratios are 70 percent higher than the corresponding U.S. GAAP ratios. I then find that Moody's hard and soft rating adjustments are associated with significantly higher credit spreads and flatter credit spread term structures. Overall, the results indicate that Moody's quantitative adjustments to financial statement numbers and qualitative adjustments to credit ratings enable it to better capture default risk, consistent with it effectively processing both hard and soft information.

Where Did All the Dollars Go? The Effect of Cash Flows on Capital and Asset Structure

2011 ◽  
Vol 46 (5) ◽  
pp. 1259-1294 ◽  
Author(s):  
Sudipto Dasgupta ◽  
Thomas H. Noe ◽  
Zhen Wang
Keyword(s):  
Cash Flow ◽  
Economic Effect ◽  
Balance Sheet ◽  
Cash Flows ◽  
Long Run ◽  
Goods Market ◽  
Short Run ◽  
Debt Market ◽  
Short And Long Term

AbstractThis paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.

A general risk process and its properties

1992 ◽  
Vol 29 (1) ◽  
pp. 73-81 ◽  
Author(s):  
Thomas H. Scheike
Keyword(s):  
Risk Process ◽  
Jump Size ◽  
The Past ◽  
Distributional Properties ◽  
Jump Time ◽  
The Law ◽  
Jump Sizes

We construct a risk process, where the law of the next jump time or jump size can depend on the past through earlier jump times and jump sizes. Some distributional properties of this process are established. The compensator is found and some martingale properties are discussed.

scholarly journals PENERAPAN PSAK NO. 2 TENTANG LAPORAN ARUS KAS DALAM PENGAMBILAN KEPUTUSAN PADA PERUM BULOG DIRVE SULUT DAN GORONTALO

2015 ◽  
Vol 13 (03) ◽  
Author(s):  
Fanesa Isalia Minanda Syaefudin ◽  
Jenny Morasa ◽  
Stanly Alexander
Keyword(s):  
Decision Making ◽  
Cash Flow ◽  
Balance Sheet ◽  
Financial Statements ◽  
Operating Cash Flow ◽  
Cash Flow Statement ◽  
Quantitative Descriptive ◽  
One Year ◽  
Finance Department ◽  
Real State

In the company’s Financial Statements is a means of consideration in decision making so that, componentsin the financial statements must betrue and correct. In thedecision making companies should use the cash Flow Statement because sometimes the income and balance sheet does not show the real state of corporate finance. The purposeof this study to determine the application of the Cash Flow Statement in accordance with SFAS No. 2 in corporate decision. This type of research is quantitative descriptive. The results showed, net cash provided by the company during the year has decreased compared to the previous year. This study uses the ratio analysisin corporate decision making. The Ratio of Operating Cash Flow to Total Liabilities can be used as basis for decision making in the company repay its total Liability for one year of operation. The Ratio of Cash Flow to Current Liabilities can be used as the basis of the decision making companies when measuring the company’s ability to pay Current Liabilities by Net Operating Cash Flow. The Ratio of Cash Flow to Sales companies measure the company’s ability to measure the company’s ability to obtain cash from to sale. Leaders should Perum Bulog particularly the finance department needs to implement the Cash Flow Statement as the basis of its analysis so that can know the financial situation and can be used as a basis for decision making of the company.

scholarly journals A One Year Forecasting Project For Publicly Traded Companies

2011 ◽  
Vol 4 (9) ◽  
pp. 73
Author(s):  
Fred Petro
Keyword(s):  
Cash Flow ◽  
Team Member ◽  
Balance Sheet ◽  
Annual Reports ◽  
Publicly Traded ◽  
Accounts Receivable ◽  
Publicly Traded Companies ◽  
Income Statement ◽  
History Of ◽  
One Year

This project is intended to teach students to apply the material covered in their first graduate accounting course. This is accomplished by applying the material to an actual company selected by each team. The project is described as follows: The project includes a computerized spreadsheet preparation of a master budget forecast for an actual publicly traded company for one year into the future. . The dates depend upon when the annual reports are prepared for your company. The forecast begins the day following the last available published annual report. The forecast does not comprise any actual numbers regardless of when the actual annual or quarterly statements are prepared for the company selected. The actual balance sheet, income statement and statement of cash flow from the preceding year are included with the forecasted balance sheet, income statement and statement of cash flow. The company must have a physical inventory, and accounts receivable from sales. The company may not be one in which any team member(s) are employed. The forecast will include the following items:1. Introduction, including the history of the company and a description of the company plan and policies as given in the project2. Sales budget (twelve months).3. Schedule of purchases (twelve months).4. Schedule of collection of credit sales (accounts receivable) and cash sales (twelve months).5. Cash budget (twelve months).6. An Income statement (for the current year and the projected year).7. A Balance sheet (for the current year and the projected year).8. A Statement of cash flow (for the current year and the projected year).9. Cost-profit-volume analysis (twelve months).10. Conclusion and recommendations

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