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In Rememberance: World Trade Center (WTC)

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Yu, Fan, "Accounting Transparency and the Term Structure of Credit Spreads", Journal of Financial Economics, Vol. 75, No. 1, (January 2005), pp. 53-84.

Abstract: Theory predicts that the quality of a firm's information disclosure can affect the term structure of its corporate bond yield spreads. Using cross-sectional regression and Nelson-Siegel yield curve estimation, I find that firms with higher AIMR disclosure rankings tend to have lower credit spreads. Moreover, this "transparency spread" is especially large among short-term bonds. These findings are consistent with the theory of discretionary disclosure as well as the incomplete accounting information model of Duffie and Lando (2001). The presence of a sizable short-term transparency spread can attenuate some of the empirical problems associated with structural credit risk models.

JEL Classification: G13, G14, D82.

Keywords: accounting transparency, corporate disclosure quality, term structure of credit spreads, Nelson-Siegel yield curve estimation, structural credit risk models.

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