Analysis of Factors Influencing on Recovery Rate on Defaulted Corporate Bonds in Developed and Emerging Markets

Despite on the fact that in the event of a company bankruptcy bondholders have absolute priority over other creditors, one of the key parameters for assessing losses after a default on corporate bonds is the recovery rate. The recovery rate is one of the key parameters for estimating potential losses upon the occurrence of a default on corporate bonds and is of great importance for making investment decisions. In accordance with Basel II and III, the recovery rate is calculated as a one minus the share of losses in case of default. The relevance of this work lies in the insufficient knowledge of the factors affecting the recovery rate on bonds of developing countries. The markets of corporate bonds of developing countries continue to grow at a high rate and demonstrate high levels of profitability, which attract investors. The paper deals with multi-level factors - the characteristics of bond issues, macroeconomic factors, financial indicators. Determinants of recovery rates on bonds of developed and emerging markets are compared.