Abstract
In this paper, we exploit the information in a publicly traded company’s stock and bond prices to es-timate its default probability and recovery rate. We document that estimated probabilities of default and recovery rates exhibit cross-sectional variation with the ratio of book to market equity and with industry affiliation. Additionally, dividend yield, and the term premium in Treasury bond yields influ-ence temporal variation in aggregate probabilities of default and in recovery rates. Such findings provide a deeper understanding of how default probability and recovery rate interact to determine the outcome when a firm ends up in financial distress. <b>TOPICS:</b>Fixed-income portfolio management, credit risk management, fundamental equity analysis, statistical methods
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