Anchoring and the Cost of Capital
Speaker
Abstract
| This paper documents that the path of credit spreads since a firm’s last loan influences the level at which it can currently borrow. If spreads have moved in the firm’s favor (i.e., declined), it is charged a higher interest rate than justified by current fundamentals, and if spreads have moved to its detriment, it is charged a lower rate. We evaluate several possible explanations for this finding, and conclude that anchoring (Tversky and Kahneman [1974]) to past deal terms is most plausible. |
| Contact information: |
| Elvira Sojli |
| This event is an Erasmus Finance Seminar. The Erasmus Finance Seminar series brings prominent researchers in Finance from all over the world to Rotterdam. |
