Corporate Leverage, Debt Maturity, and Credit Supply: The Role of Credit Default Swaps

Saretto, Alessio; Tookes, Heather

doi:10.1093/rfs/hht007

Cited by 247 publications

(119 citation statements)

References 64 publications

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“…A potential concern arises if the supplier's stock return synchronicity and sales to CDS referenced customers are jointly determined by some common factors. Following previous literature (Ashcraft & Santos, ; Kim et al, ; Li & Tang, ; Martin & Roychowdhury, ; Saretto & Tookes, ; Subrahmanyam et al, , ), we address the endogeneity issue by conducting DID analysis with matched sample, placebo test, and instrumental variable regressions.…”

Section: Resultsmentioning

confidence: 99%

“…They are an effective risk‐sharing and risk‐taking tool for major financial institutions and hedge funds. Recent literature has linked the initiation of CDS trading to the corporate decisions of the underlying firms, such as changes in borrowing costs (Ashcraft & Santos, ), leverage ratio (Saretto & Tookes, ), probability of bankruptcy (Subrahmanyam, Tang, & Wang, ), accounting reporting practices (Martin & Roychowdhury, ), cash holdings (Subrahmanyam, Tang, & Wang, ), and managers’ voluntary disclosures (Kim, Shroff, Vyas, & Wittenberg‐Moerman, ).…”

Section: Introductionmentioning

confidence: 99%

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The externalities of credit default swaps on stock return synchronicity

Zhao

Zhu

2019

Journal of Futures Markets

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We examine the externality effect of customer firms’ credit default swap (CDS) trading on the stock price informativeness of supplier firms. Our empirical results show that firms with a high proportion of sales to CDS referenced customers tend to have more firm‐specific embedded information in their stock prices and thus higher stock price informativeness, which is associated with a lower level of stock return synchronicity. We provide new evidence of CDS trading externality on equity market information environments along the supply chain.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The externalities of credit default swaps on stock return synchronicity

Zhao

Zhu

2019

Journal of Futures Markets

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“…We also contribute to the growing literature on the CDS market and its widespread effects on firms and capital providers. While some studies highlight the role of CDSs in improving financial flexibility (e.g., Saretto and Tookes []), others indicate substantial adverse consequences of CDSs on firms’ credit risk and lender monitoring (e.g., Bolton and Oehmke [], Subrahmanyam, Tang, and Wang [], Martin and Roychowdhury []). Amiram et al.…”

Section: Introductionmentioning

confidence: 99%

Credit Default Swaps and Managers’ Voluntary Disclosure

Kim

Shroff

Vyas³

et al. 2018

J of Accounting Research

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We investigate how the availability of traded credit default swaps (CDSs) affects the referenced firms’ voluntary disclosure choices. CDSs enable lenders to hedge their credit risk exposure, weakening their incentives to monitor borrowers. We predict that reduced lender monitoring in turn leads shareholders to intensify their monitoring and demand increased voluntary disclosure from managers. Consistent with this expectation, we find that managers are more likely to issue earnings forecasts and forecast more frequently when traded CDSs reference their firms. We further find a stronger impact of CDS availability on firm disclosure when (1) lenders have higher ability and propensity to hedge credit risk using CDSs, and (2) lender monitoring incentives and monitoring strength are weaker. Consistent with an increase in shareholder demand for public information disclosure induced by a reduction in lender monitoring, we find a stronger effect of CDSs on voluntary disclosure for firms with higher institutional ownership and stronger corporate governance. Overall, our findings suggest that firms with traded CDS contracts enhance their voluntary disclosure to offset the effect of reduced monitoring by CDS‐protected lenders.

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“…The reason this topic is scarcely visited might be that discussions about the negative externalities of CDS trade began just after the 2008 financial crisis. Before then, the virtue of CDS trade, that it removes market frictions, was the hot topic (see Saretto and Tookes 2012). We will analyze whether the emerging market CDS markets have long-run and short-run equilibrium relationships with the other financial market segments.…”

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confidence: 99%

The Drivers of Credit Default Swap Prices: Evidence from Selected Emerging Market Countries

Ertuğrul

Öztürk

2013

Emerging Markets Finance and Trade

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In this study, we empirically investigate the relationship between credit default swap (CDS) spreads and financial market indicators belonging to bond, equity, and foreign exchange markets for the selected emerging market countries. This study has several findings. The empirical results suggest that the CDS spreads have a cointegrating relationship with the remaining financial market indicators for the whole sample. Another finding that deserves particular attention is that in the long run, the CDS spread is negatively related with the CDS market uncertainties. We argue that this negative relationship indicates low liquidity in the elevated uncertainty, which decreases CDS prices. The time-varying effects of each variable on the CDS spread are in line with the results obtained from the cointegration analyses. These findings have several implications for investors and policymakers in emerging market countries.

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Corporate Leverage, Debt Maturity, and Credit Supply: The Role of Credit Default Swaps

Cited by 247 publications

References 64 publications

The externalities of credit default swaps on stock return synchronicity

The externalities of credit default swaps on stock return synchronicity

Credit Default Swaps and Managers’ Voluntary Disclosure

The Drivers of Credit Default Swap Prices: Evidence from Selected Emerging Market Countries

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