Chapter | Integrated Communications: The Search for Synergy in Communication Voices | 1996

Features of Good Integration: Two Cases and Some Generalizations

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Deighton, J. A. "Features of Good Integration: Two Cases and Some Generalizations." In Integrated Communications: The Search for Synergy in Communication Voices, edited by J. Moore, and E. Thorsen. Hillsdale, NJ: Lawrence Erlbaum Associates, 1996.

We show that the credit quality of corporate debt issuers deteriorates during credit booms, and that this deterioration forecasts low excess returns to corporate bondholders. The key insight is that changes in the pricing of credit risk disproportionately affect the financing costs faced by low quality firms, so the debt issuance of low quality firms is particularly useful for forecasting bond returns. We show that a significant decline in issuer quality is a more reliable signal of credit market overheating than rapid aggregate credit growth. We use these findings to investigate the forces driving time-variation in expected corporate bond returns.

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Features of Good Integration: Two Cases and Some Generalizations

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