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This chapter studies banks’ loan pricing behavior in mainland China during 2003–2013 by applying panel regressions to firm-level loan data and the estimated default likelihood for listed companies. The authors find that with the progress of market-oriented financial reforms, banks generally require compensation for their exposure to borrowers’ default risks. It is even more so if the borrower is a non-state-owned enterprise (non-SOE), mainly due to the pricing behavior of the Big Four banks. Bank lending rates are shown to be less sensitive to the default risks of state-owned enterprises (SOEs). Our results also reveal that banks priced in firm default risks before 2008 financial crisis, but not necessarily so after the crisis. As for industries, we find that after the 2008 Global Financial Crisis, the real estate sector and other government-supported industries tended to enjoy better terms on loan pricing in terms of default risks. We believe the main reason is that the government stimulus policies tilted toward those industries that have played crucial roles in China’s economic growth.

Purpose – The relation between research and development (R&D) expenditures and bondholder wealth is examined.

Methodology/approach – A sample of firms that increase R&D expenditures is partitioned into two subsamples: firms with high default risk versus firms with low default risk. For each subsample, we examine the effect of R&D increases on bond returns and default risks.

Findings – For firms with high default risk, R&D increases have a negative impact on bond returns and default risk. Further, there is a wealth transfer from bondholders to stockholders surrounding R&D increases. Neither of these results is found for firms with low default risk.

Research limitations/implications – The present study highlights the importance of assessing firm's existing default risk to understand the effects that R&D expenditures have on bondholders.

Social implications – The study reveals a potential social welfare and economic cost, as it reveals that stockholders may be able to gain wealth at the expense of bondholders.

Originality/value – The study provides important insights to bondholders on how firms’ investment policies, such as R&D expenditures, may affect their wealth.

The purpose of this paper is to examine the effect of female CEO board members on listed family firms’ corporate default risk, integrating upper echelons theory with social role theory and the socio-emotional wealth approach and proxying default risk with the Black–Scholes–Merton model. It also searches for possible differences attributable to the type of female CEO.

This study is applied to a longitudinal sample of listed US family firms. After a preliminary analysis of the main descriptive, several models are estimated with the system GMM estimator, which is a panel data estimator. The models are dynamic, including the lagged value of the dependent variable. In addition, the model estimation is repeated with a different measure of default risk, for robustness.

This research findings show that default risk diminishes in the presence of a female CEO, whose reduction is even greater if she is a family member. The results are proven to be robust to the measure for proxying default risk.

This study primarily contributes to the existing literature by exploring a possible link between female CEOs, particularly those with a family affiliation, and a lower level of default risk in family firms. It also provides practical implications for policymakers, who would be advised to promote conditions enabling women to contribute towards family business viability. In addition, this study offers encouragement for family business owners to value the potential of their female family members in company succession processes.

The main purpose of this study is to evaluate the probability of default and examine the relationship between default risk and financial performance, with dynamic panel moderation of firm size.

This study utilizes a total of 1,500 firm-year observations from 2013 to 2018 using dynamic panel data approach of generalized method of moments to test the relationship between default risk and financial performance with the moderation effect of the firm size.

This study establishes the findings that default risk significantly impacts the financial performance. The relationship between distance-to-default (DD) and financial performance is positive, which means the relationship of the independent and dependent variable is inverse. Moreover, this study finds that the firm size is a significant positive moderator between DD and financial performance.

This study provides new and useful insight into the literature on the relationship between default risk and financial performance. The results of this study provide investors and businesses related to nonfinancial firms in the Pakistan Stock Exchange (PSX) with significant default risk's impact on performance. This study finds, on average, the default probability in KSE ALL indexed companies is 6.12%.

The evidence of the default risk and financial performance on samples of nonfinancial firms has been minimal; mainly, it has been limited to the banking sector. Moreover, the existing studies have only catered the direct effect of only. This study fills that gap and evaluates this relationship in nonfinancial firms. This study also helps in the evaluation of Merton model's performance in the nonfinancial firms.

The purpose of this study is to examine the relationship between corporate social responsibility (CSR) and the default risk level of firms operating in the Eurozone and how CSR can provide insurance-like protection during financial/economic downturns.

Based on prior empirical studies and by integrating the insights of different theories, this study proposes a framework linking CSR, firm default risk and corporate financial performance to explain firms' social behavior that can trigger default risk determinants (e.g. cost of capital, leverage, sales level) directly or indirectly. The authors use a panel regression approach.

The results support the mitigating effect of CSR on firm default risk. This effect is higher during a financial crisis, suggesting that CSR could provide insurance-like protection during economic downturns. These results hold even after using an alternative risk measure. Granger causality test results strongly suggest that reverse causality is not a concern. An instrumental variable approach is proposed to deal with potential endogeneity issues.

While other studies examine the CSR–firm default risk relationship in US samples, this study focuses on the Eurozone. The novelty of this work is based on its sample and how financial crises are addressed within this relationship. Insurance-like protection concerns both negative announcements and periods (e.g. financial crises, recessions). The study's results are useful for investors and risk managers who intend to manage default risk in their portfolios or firms.

This study aims to examine the impact of intellectual capital (IC) on default risk in Indian companies listed on the National Stock Exchange.

This study applies panel data regression analysis to derive a relationship between IC and default risk for the sample period 2013–2022. The value-added intellectual coefficient (VAIC) of Pulic (2000) has been applied to measure IC performance, and default risk is estimated using the revised Z-score model of Altman (2000).

The results revealed a positive association between Z-score and VAIC. It implies that a higher value of VAIC improves financial stability and leads to a lower likelihood of default. The findings further suggest that new default forecasting models can be experimented with IC indicators for better default prediction.

The findings can have implications for investors and banks. This paper provides evidence of IC performance in improving the financial solvency of firms. Investors and financial institutions should invest their resources in a healthy firm that effectively manages and invests in their IC. It will eventually award investors and creditors high returns through efficient value-creation processes.

This study provides evidence of IC performance in improving the financial solvency of Indian high-defaulting firms, which lacks sufficient evidence in this domain of research. Numerous studies exist examining the relationship between firm performance and IC value, but this area is inadequately focused and underresearched. This study, therefore, fills the research gap from an Indian perspective.

An investor in a corporate obligation is exposed to the default risk of the obligor. In this article, the author adapts the dynamic valuation framework to disaggregate systematic and idiosyncratic default risk of credit instruments. By articulating the distinction between diversifiable and undiversifiable risk, the article develops a two‐factor model for pricing default risk.

Audit firm bankruptcy can have significant negative impacts on the stock prices of client firms. The purpose of this paper is to identify determinants of audit firm bankruptcy risk as measured by costs of debt.

Using audit firm data publicly available in Korea, this study empirically examines whether client portfolio, financial, and organizational characteristics are associated with the weighted average interest rates assumed by auditors.

The authors find empirical evidence that audit firms’ client portfolio characteristics, including the incidence (or number) of lawsuits against the auditor, the proportion of audit clients under surveillance, the proportion of initial audit engagements, and the proportion of listed companies of audit clients, are positively associated with the cost of debt. The authors also find several financial and organizational characteristics associated with the cost of debt.

The findings of this study suggest that client portfolio characteristics as well as financial and organizational characteristics are important determinants of the cost of debt in audit firms, and that these characteristics are different from those of firms in other industries. Identifying the determinants of audit firms’ cost of debt provides insight to regulators, client firms, and capital market participants.

This study examines the default risk of audit firms that play an important monitoring role in capital markets. By utilizing unique data about audit firms available in Korea, this study is the first study to empirically examine the effect of detailed audit firm characteristics on audit firm’s default risk.

The purpose of this article is to discuss a Black‐Scholes‐Merton (BSM)‐based market approach to quantify the default risk of publicly‐listed individual companies.

Using the contingent claim approach, a framework is presented to optimally use stock market and balance sheet information of the company to predict its probability of failure as well as ordinal risk ranking over a horizon of one year.

By applying the methodology, yearly estimates of the risk neutral and real probability of default for 150 Indian corporates from 1998 to 2005 were constructed, that give up‐to‐date point‐in‐time perspective of their risk assessment. It was found that option model can provide ordinal ranking of companies on the basis of their default risk which also has good early warning predictability.

The option‐based default probability estimation may be an innovative approach for measuring and managing credit risk even in the emerging market economy. The asset value model developed in this paper based on the BSM model can facilitate the Indian banks as well as investors to get an early warning signal about the company's default status.

This study aims to systematically review the literature in the fields of liquidity, informational efficiency and default risk. The authors outline the key research streams and provide possible pathways for future research.

The study adopts bibliographic mapping to identify the most influential studies in the research fields of liquidity, informational efficiency and default risk from 1984 to 2021.

The study identifies four key research themes that include efficiency and transparency of markets; corporate yield spreads; market interactions: bonds, stocks and cryptocurrencies; and corporate governance. By assessing publications published from 2018 to 2021, the authors also document seven key emerging research trends: cross markets, managerial learning and corporate governance, state ownership and government subsidies, international evidence, machine learning (FinTech approaches), environmental themes and financial crisis. Drawing on these emerging trends, the authors highlight the opportunities for future research.

Keyword searches have limitations since some studies might be overlooked if they do not match the specified search criteria, even though their relevance to the topic is under investigation. Adopt the R project to expand this review by incorporating more literature from other databases, such as the Scopus database could be a possible solution.

The four key research streams contribute to a comprehensive understanding of liquidity, informational efficiency and default risk. The emerging trends integrate existing knowledge and leave the chance for innovative research to expand the research frontier.

This study fulfills the systematic literature review streams in the fields of liquidity, informational efficiency and default risk, and provides fruitful opportunities for future research.