Corporate Profit and Credit Spread Dynamics

Posted: 14 Aug 2014  

Vichet Sum

University of Maryland Eastern Shore - School of Business and Technology

Date Written: August 14, 2014

Abstract

This study examines the dynamic response of credit spread (CS) to corporate profit growth (CP) shock. Using the bivariate VAR model to analyze quarterly data from 1952Q1 to 2012Q4, the results show that credit spread drops immediately following the positive shock to corporate profit growth, and it stays stably low for the horizon of 8 quarters. The Granger causality Wald tests indicate a causal linkage between credit spread and corporate profit growth.

Keywords: corporate profit growth, credit spread, VAR

JEL Classification: G12, G14, G17

Suggested Citation

Sum, Vichet, Corporate Profit and Credit Spread Dynamics (August 14, 2014). Available at SSRN: https://ssrn.com/abstract=2480308

Vichet Sum (Contact Author)

University of Maryland Eastern Shore - School of Business and Technology ( email )

2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)

HOME PAGE: http://www.umes.edu/bma/Sum.html

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