In the United States, government rescues are not as common as in other countries. Assuming that this is expected to continue in the future, the risk premium on a given level of debt would be higher for U.S. firms than for firms of other countries, everything else being equal.

Question

Quizplus · Accepted Answer

If government rescues are less common in the United States, bondholders will assume higher default risk, resulting in a higher risk premium. This means that, all else being equal, U.S. firms will need to pay a higher interest rate to attract lenders than firms in other countries with greater levels of government support.

In the United States, Government Rescues Are Not as Common