Liquidity and Credit Risk Before and after the Global Financial Crisis: Evidence from the Korean Corporate Bond Market

Posted: 11 Nov 2014 Last revised: 10 Apr 2015

See all articles by Dongheon (David) Shin

Dongheon (David) Shin

University of Washington - Michael G. Foster School of Business

Baeho Kim

Korea University Business School (KUBS)

Date Written: March 12, 2015

Abstract

We study the impact of the recent global financial crisis on the determinants of corporate bond spreads, in particular, focusing on the impact of liquidity and credit risk on yield spreads using data regarding financial and non-financial bond issuers listed on the Korea Exchange (KRX). Our main findings reveal that the selected liquidity variables explain a relatively larger portion of the variation in yield spreads before and during the crisis period, whereas the credit risk component has become a more influential determinant of yield spreads after the crisis. This observation implies that investors in the Korean corporate bond market require more default risk premium in the post-crisis period in response to the increased uncertainty in the financial market with the amplified economic vulnerability.

Keywords: Determinants of corporate bond spreads; Global financial crisis; Credit risk; Liquidity risk

JEL Classification: G01, G12, G32

Suggested Citation

Shin, Dongheon (David) and Kim, Baeho, Liquidity and Credit Risk Before and after the Global Financial Crisis: Evidence from the Korean Corporate Bond Market (March 12, 2015). Pacific-Basin Finance Journal, Vol. 33, pp. 38-61, 2015. Available at SSRN: https://ssrn.com/abstract=2522772 or http://dx.doi.org/10.2139/ssrn.2522772

Dongheon (David) Shin

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Baeho Kim (Contact Author)

Korea University Business School (KUBS) ( email )

Anam-dong, Sungbuk-Gu
Korea University Business School
Seoul, 136-701
82-2-3290-2626 (Phone)
82-2-922-7220 (Fax)

HOME PAGE: http://biz.korea.ac.kr/~baehokim

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