Corporate Payout Policy and Credit Risk: Evidence from Credit Default Swap Markets

Sun, Chengzhu; Wang, Shujing; Zhang, Chu

doi:10.1287/mnsc.2020.3753

Cited by 13 publications

(21 citation statements)

References 61 publications

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“…In contrast, abnormal CDS spreads decrease for big-sized firms, regardless of whether the repurchase ratio is high or low during the crisis period. Our results are inconsistent with Sun et al's (2021) conclusion that buyback plays a negligible information role for bondholders. Therefore, it provides managers with policy implications to consider macroeconomic conditions when deciding on stock buyback.…”

Section: Introductioncontrasting

confidence: 99%

“…In the above articles, changes in bondholders' wealth are measured by changes in abnormal bond returns or yield spread changes. Recently, Sun et al (2021) insist that credit default swap (CDS) spreads are better and cleaner for measuring bondholders' wealth than bond returns or yield spreads [1]. Utilizing CDS spread changes, they examine the signaling and wealth transfer effects around payout announcements.…”

Section: Introductionmentioning

confidence: 99%

“…Our research motivation is as follows. First, Sun et al (2021) report that there are no significant CDS spread changes around buyback announcements and that they do not significantly respond to buyback announcements even during economic recessions. However, the authors define recession periods as 2001, 2002, 2008 and 2009; thus, a more delicate definition of recession periods is required.…”

Section: Introductionmentioning

confidence: 99%

“…Although CDS spreads should be a better measure than bond returns or yield spreads for bondholders' wealth, few studies explore the impacts of buyback announcements on bondholders utilizing CDS spread changes; Sun et al (2021) and DelFavero (2018) can only be found. Sun et al (2021) examine the effect of payout policies on credit risk by observing CDS spread changes around payout announcements. However, they focus more on dividend policies than on stock buyback policies and analyze the impacts of macroeconomic conditions with simply defined recession periods.…”

Section: Introductionmentioning

confidence: 99%

“…Second, we examine the reactions of the CDS spread across the mid-term and short-term windows. In contrast to Sun et al (2021), to observe CDS spread changes over a 15-day trading day event window as the main analysis interval, we add a one-month event window and two-month event window to observe medium-term effects. Hence, we can consider delayed responses when the CDS spread may not respond efficiently in a short time.…”

Section: Introductionmentioning

confidence: 99%

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Stock buybacks and credit default swap spread changes

Park¹,

Park

2022

JDQS

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The authors investigate whether the effects of stock buyback announcements on credit default swap (CDS) spread changes for US firms depend on macroeconomic conditions. The authors find that abnormal CDS spreads increase for small-sized firms announced to repurchase a higher share ratio during the normal period. In contrast, abnormal CDS spreads decrease for big-sized firms regardless of the magnitude of the repurchase ratio during the crisis period. The results of this study suggest that the wealth transfer effect dominates the signaling effect for small-sized firms with higher target ratios during the normal period. In contrast, the signaling effect is stronger for bondholders of big-sized firms during the crisis period.

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Section: Introductioncontrasting

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Stock buybacks and credit default swap spread changes

Park¹,

Park

2022

JDQS

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Attention to dividends, inattention to earnings?

2021

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We examine whether dividends serve as substitutes or complements to accounting information in firm valuation. Consistent with dividends substituting for earnings information, we find that dividend paying firms have 11%–15% lower earnings response coefficients (ERCs) than non-payers. We find more substitution when the dividend provides a stronger signal of permanent earnings: when the firm is less likely to cut the dividend, when the firm is likely to fund the dividend out of earnings rather than cash reserves, or when the dividend is larger. We then show that dividend payers have lower absolute returns, less trading volume, and fewer analyst forecasts at the earnings announcement (EA), suggesting that dividend payers attract less attention to their less informative EAs. Finally, we show that the lower EA attention translates into less earnings management and fewer earnings-related disclosures for dividend payers relative to non-payers. Collectively, this evidence suggests that dividends supply information about permanent earnings and, although costly, could be an efficient way for some firms to satisfy investors’ demand for earnings information.

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Fundamentals, real-time uncertainty and CDS index spreads

Audzeyeva

Wang

2023

Rev Quant Finan Acc

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The high level of economic uncertainty linked to the pace of the recovery process can persist after a crisis and has implications for the market pricing of firms’ credit risk reflected in credit default swap (CDS) spreads. This paper examines the role of key proxies for the economic state and its real-time uncertainty in determining Northern American CDX index spreads. Focusing on the recovery period following the 2007–2009 global financial crisis, we find that measures of economic output, employment, inflation, and economic uncertainty, all significantly influence CDX spreads, beyond the impact of conventional determinants. Furthermore, our results provide evidence that the sensitivity of investment-grade and high-yield CDX differs across economic aspects. Moreover, our out-of-sample predictive analysis identifies indicators and uncertainty measures with significant predictive content for quarter-ahead CDX spreads. Taken together, our findings indicate that academic modelers and practitioners employing more accurate representations of the macroeconomy in CDS modeling and analysis can improve upon the models that rely solely on the typically employed economic output variables or on broad data aggregation.

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Corporate Payout Policy and Credit Risk: Evidence from Credit Default Swap Markets

Cited by 13 publications

References 61 publications

Stock buybacks and credit default swap spread changes

Stock buybacks and credit default swap spread changes

Attention to dividends, inattention to earnings?

Fundamentals, real-time uncertainty and CDS index spreads

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