We empirically show the dynamics of information production and information sensitivity of bank debt around the Great Recession. As more precise information is produced at the onset of the crisis, bank debt becomes informationally sensitive, along two separate dimensions. First, precise information amplifies the effect of market expectations on default risk; second, for banks that are already expected to perform poorly, more precise information further increases default risk. Both effects are muted in good times. Overall, our findings are consistent with information-based models of financial crises.

The information sensitivity of debt in good and bad times / Brancati, Emanuele; Macchiavelli, M.. - In: JOURNAL OF FINANCIAL ECONOMICS. - ISSN 0304-405X. - 133:1(2019), pp. 99-112. [10.1016/j.jfineco.2019.01.002]

The information sensitivity of debt in good and bad times

BRANCATI, EMANUELE;
2019

Abstract

We empirically show the dynamics of information production and information sensitivity of bank debt around the Great Recession. As more precise information is produced at the onset of the crisis, bank debt becomes informationally sensitive, along two separate dimensions. First, precise information amplifies the effect of market expectations on default risk; second, for banks that are already expected to perform poorly, more precise information further increases default risk. Both effects are muted in good times. Overall, our findings are consistent with information-based models of financial crises.
2019
cds spreads; financial crisis; information sensitivity
01 Pubblicazione su rivista::01a Articolo in rivista
The information sensitivity of debt in good and bad times / Brancati, Emanuele; Macchiavelli, M.. - In: JOURNAL OF FINANCIAL ECONOMICS. - ISSN 0304-405X. - 133:1(2019), pp. 99-112. [10.1016/j.jfineco.2019.01.002]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/1351620
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