“…Jones, Mason, and Rosenfeld (1984) and more recently Huang and Huang (2003) HH03 also show that proposed extensions of the Merton model such as jumps in firm value, stochastic interest rates, endogenously determined default boundary, and meanreverting leverage ratios do not come close to solving the puzzle once they are calibrated with empirically reasonable parameters. More recent papers such as Hackbarth, Miao, and Morellec (2006), Chen, Collin-Dufresne, and Goldstein (2009), Chen (2009), and Bhamra, Kuehn, and Strebulaev (2009 link firm decisions, earnings, risk premia, and/or default rates to the business cycle. They show that realistic credit spreads are generated at longer maturities and for firms with a rating of typically BBB.…”