What Determines Creditor Recoveries?

52 Pages Posted: 18 Mar 2011

See all articles by Xinlei Shelly Zhao

Xinlei Shelly Zhao

Government of the United States of America - Office of the Currency Comptroller - Risk Analysis Division

Date Written: February 28, 2011

Abstract

We examine determinants of creditor recoveries from defaulted debt instruments. First, we find that common measures of seniority and security, such as debt instrument types and collateral types, explain much less variations in recovery rates across defaulted debt instruments than seniority index, a new measure of seniority that we propose in this study. Second, firm-level variables, especially the trailing 12-month stock return, are more critical than industry- or macro-level variables, although the latter can also help, particularly for private firms for which stock price information is not available. The relative contribution of the industry and macroeconomic variables, however, varies with the modeling technique used. Finally, the joint distribution of default and recovery seems driven more by idiosyncratic risk than by systematic risk.

Suggested Citation

Zhao, Xinlei, What Determines Creditor Recoveries? (February 28, 2011). Available at SSRN: https://ssrn.com/abstract=1786626 or http://dx.doi.org/10.2139/ssrn.1786626

Xinlei Zhao (Contact Author)

Government of the United States of America - Office of the Currency Comptroller - Risk Analysis Division ( email )

250 E Street, SW
Washington, DC 20219
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
42
Abstract Views
252
PlumX Metrics