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Bond Yields, Taxes, and the Dimensions of Default Risk

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  • Skinner, Frank S

Abstract

This work develops and empirically estimates models of bond yields subject to default risk. Parameters for the probability of survival and the recovery rate subsequent to default are included in a model of corporate bond yields that allow a study of interactions among them. The municipal version of the model includes the tax rate as an additional factor. Empirical evidence is found that supports the notion that both dimensions of default, considered jointly, are related to bond quality. In addition, statistically significant differences in tax rates suggest that higher tax rates are associated with higher grade municipal bonds. Copyright 1995 by MIT Press.

Suggested Citation

  • Skinner, Frank S, 1995. "Bond Yields, Taxes, and the Dimensions of Default Risk," The Financial Review, Eastern Finance Association, vol. 30(4), pages 739-761, November.
    • Handle: RePEc:bla:finrev:v:30:y:1995:i:4:p:739-61
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    Cited by:

    1. Chris Brooks & Frank Skinner, 2000. "What will be the risk-free rate and benchmark yield curve following European monetary union?," Applied Financial Economics, Taylor & Francis Journals, vol. 10(1), pages 59-69.

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