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Anchoring on Credit Spreads

Author

Listed:
  • CASEY DOUGAL
  • JOSEPH ENGELBERG
  • CHRISTOPHER A. PARSONS
  • EDWARD D. VAN WESEP

Abstract

type="main"> This paper documents that the path of credit spreads since a firm's last loan influences the level at which it can currently borrow. If spreads have moved in the firm's favor (i.e., declined), it is charged a higher interest rate than is justified by current fundamentals, whereas if spreads have moved to the firm's detriment, it is charged a lower rate. We evaluate several possible explanations for this finding, and conclude that anchoring to past deal terms is most plausible.

Suggested Citation

  • Casey Dougal & Joseph Engelberg & Christopher A. Parsons & Edward D. Van Wesep, 2015. "Anchoring on Credit Spreads," Journal of Finance, American Finance Association, vol. 70(3), pages 1039-1080, June.
    • Handle: RePEc:bla:jfinan:v:70:y:2015:i:3:p:1039-1080
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    File URL: http://hdl.handle.net/10.1111/jofi.12248
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