Bad Paper

What is ‘Bad Paper’

Unsecured short-term fixed income instrument that is issued either by a corporation, city, state or country, that has a high probability of defaulting on their promissory notes. Since bad paper is not backed by collateral, it is sold at a discount to the equivalent collateral-backed fixed-income securities. However, in contrast to regular commercial paper which typically has a strong rating from a credit agency, bad paper does not possess this quality.

Explaining ‘Bad Paper’

Bad paper is risky. Not only is it not backed by collateral, it is also issued by an entity that could potentially fail to meets its obligations. Bad-paper investors take on high levels of risk and, as a result, would be offered an attractive interest rate as proper compensation.

Further Reading

  • Emerging capital markets in turmoil: bad luck or bad policy? – [PDF]
  • Rational herding in financial economics – [PDF]
  • The problem of bad debts: Cleaning banks' balance sheets in economies in transition – [PDF]
  • Economy-wide corruption and bad loans in banking: international evidence – [PDF]
  • What Makes a Good" Bad Bank"? The Irish, Spanish and German Experience – [PDF]
  • Currency and financial crises in Turkey 2000–2001: bad fundamentals or bad luck? – [PDF]
  • Do democratic transitions produce bad economic outcomes? – [PDF]
  • It is not always bad news: Illustrating the potential of integrated reporting using a case study in the eco-tourism industry – [PDF]
  • How bad was it? The costs and consequences of the 2007–09 financial crisis – [PDF]
  • The good practices manifesto: Overcoming bad practices pervasive in current research in business – [PDF]