The magnitude and Cyclical Behavior of Financial Market Frictions



Table 2

NLLS Estimates of Bankruptcy Cost Parameter μ

Period

Obs.

Estimate

Std. Err. a

Adj. R^i

Pr > λRb

Pr > λιc

1997Q2

327

0.131

0.037

018

< . 01

019

1997Q3

349

0.105

0.022

0.88

<.01

0.15

1997Q4

368

0.139

0.035

0.88

<.01

0.57

1998Q1

392

0.080

0.047

0.87

<.01

0.68

1998Q2

399

0.074

0.028

0.83

<.01

0.72

1998Q3

427

0.074

0.034

0.84

<.01

0.39

1998Q4

442

0.228

0.044

0.85

<.01

<.01

1999Q1

458

0.145

0.037

0.81

<.01

<.01

1999Q2

460

0.112

0.031

0.77

<.01

0.05

1999Q3

438

0.088

0.047

0.72

<.01

0.29

1999Q4

442

0.165

0.043

0.69

<.01

0.16

2000Q1

463

0.188

0.056

0.69

<.01

0.53

2000Q2

476

0.273

0.055

0.71

<.01

0.59

2000Q3

487

0.253

0.039

0.70

<.01

0.12

2000Q4

492

0.458

0.069

0.65

<.01

<.01

2001Q1

490

0.406

0.069

0.62

<.01

<.01

2001Q2

500

0.463

0.079

0.70

<.01

<.01

2001Q3

489

0.386

0.075

0.73

<.01

<.01

2001Q4

480

0.372

0.070

0.74

<.01

<.01

2002Q1

497

0.291

0.062

0.76

<.01

<.01

2002Q2

508

0.292

0.062

0.75

<.01

<.01

2002Q3

502

0.359

0.064

0.76

<.01

<.01

2002Q4

523

0.444

0.052

0.73

<.01

<.01

2003Q1

537

0.330

0.039

0.77

<.01

<.01

2003Q2

523

0.164

0.029

0.77

<.01

<.01

2003Q3

520

0.186

0.041

0.77

< . 01

< . 01

Notes: In every period, the sample excludes firms with leverage ratios below the
2
.5th percentile and above the 97.5th percentile, firms with credit spreads above the
97
.5th percentile, and firms with EDFs at exactly 20%.

aComputed using a heteroscedasticity-consistent asymptotic covariance matrix; see White
(1980).

bp-value for the likelihood ratio test statistic λR of the exclusion of fixed credit rating
effects.

cp-value for the likelihood ratio test statistic λI of the exclusion of fixed industry effects.

25



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