Distress risk, product market competition, and corporate bond yield spreads

The purpose of this paper is to examine whether industry-level risk affects corporate bond yield spreads. We use three types of industry risk variables in our empirical analysis: distress exposure measure, industry condition, and product market competition. After controlling for common bond-level, firm-level, and macroeconomic variables, the empirical results reveal significant relationships between these industry-level risk measures and bond yield spreads. Our evidence supports that industry-related risk does play an important role in explaining bond yield spreads.