Michael Schwert


Assistant Professor of Finance
812 Fisher Hall
2100 Neil Avenue
Columbus, OH 43210

schwert dot 6 at osu dot edu


Municipal Bond Liquidity and Default RiskJournal of Finance (2017), 72(4), 1683-1722.

Working Papers

This paper investigates the pricing of bank loans in a sample of new loans to firms with outstanding bonds. After accounting for seniority, banks earn an economically large interest rate premium relative to the price of credit risk in the bond market. To establish this result, I use intuition from a reduced-form model of credit risk to show that average loan spreads are three times higher than implied by bond spreads and relative losses in default. To quantify the premium at the loan level, I apply a structural model to a subsample of secured term loans and estimate an average loan premium of 240 bps. I rule out general mispricing of seniority, liquidity, fixed costs, and capital charges as drivers of the premium. My findings imply that firms place a high value on bank services other than the simple provision of debt capital.

PIPEs are an important source of finance for small public corporations. We investigate the trading behavior and return performance of PIPE investors. PIPE returns decline with holding periods, while time to exit depends on the issue’s registration status and underlying liquidity. Under plausible assumptions, the average PIPE investor holds the stock for 384 days and earns an abnormal return of 21.2%. More constrained firms tend to issue PIPEs to hedge funds and private equity funds in offerings that have higher expected returns and higher volatility. PIPE investors’ abnormal returns appear to reflect compensation for providing capital to financially constrained firms.

Systematic risk is an important determinant of corporate capital structure. A one standard deviation increase in asset beta corresponds to a decrease in leverage of 13%, controlling for total asset volatility. This evidence is consistent with recent dynamic capital structure models that relate financing decisions to macroeconomic factors and provides further impetus for exploring the impact of systematic risk on corporate decisions.

Work in Progress

How Often Do Firms Really Refinance? Evidence from Corporate Filings (with Arthur Korteweg and Ilya Strebulaev)