Credit default swaps and corporate innovation

Chang, Xin; Chen, Yangyang; Wang, Sarah Qian; Zhang, Kuo; Zhang, Wenrui

doi:10.1016/j.jfineco.2017.12.012

Cited by 193 publications

(95 citation statements)

References 97 publications

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“…However, personal debts tend to be much smaller in scale than company debts; consequently, personal debts can be used to finance small business, but they will not be able to support entrepreneurship and innovation in large corporations.) Nevertheless, none of the existing studies investigate how a financial instrument facilitates debt financing in sustainable innovation investments (in a related work, Chang et al [64] investigated the relation between CDS trading and innovation and found a positive effect of CDS trading on innovation output. Our paper differs from theirs on the following aspects.…”

Section: Discussionmentioning

confidence: 99%

“…First, our paper focuses on the debt financing of innovation and investigates how CDS trading changes the relation between debt and innovation. Debt is our explanatory variable, while in Chang et al [64], their variable of interest was CDS trading. Second, we identify a new economic channel, CEO compensation incentive, through which CDS trading facilitates the debt financing of innovation.…”

Section: Discussionmentioning

confidence: 99%

“…Second, we identify a new economic channel, CEO compensation incentive, through which CDS trading facilitates the debt financing of innovation. In Chang et al [64] they showed that the increase in the innovation output after the onset of CDS trading is due to the tolerance for failure. Overall, the focus of our work is different from Chang et al [64], and we provide further insights about this topic by implying a new underlying channel, CEO compensation incentive).…”

Section: Discussionmentioning

confidence: 99%

“…In Chang et al [64] they showed that the increase in the innovation output after the onset of CDS trading is due to the tolerance for failure. Overall, the focus of our work is different from Chang et al [64], and we provide further insights about this topic by implying a new underlying channel, CEO compensation incentive). In this paper, we propose that CDSs may facilitate the use of debt, especially long-term debt, in the financing of innovation.…”

Section: Discussionmentioning

confidence: 99%

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The Interdependence of Debt and Innovation Sustainability: Evidence from the Onset of Credit Default Swaps

Chen

Zhang

2019

Sustainability

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Innovation sustainability requires sustainable financing. Extensive research suggests that debt is a disfavored source of innovation financing. In this study, we show that a recent financial development, credit default swaps (CDSs), may change the institutional logics of debt, making debt useful to the financing innovation. To be specific, we find that with CDS protection, creditors become less concerned with a borrowing firm’s credit risk and risk taking, making debt tolerant of early failures and reducing the negative impact of debt on the process of Innovation. In addition, we find that the availability of CDSs is more likely to change the nature of long-term debt than that of short-term debt, making long-term debt a useful instrument for the financing of innovation. Finally, the mitigation effect of CDS on the relation between debt and innovation is more pronounced for CDS firms with higher pay sensitivity to stock price volatility (Vega) and less financial constraints, revealing that a CEO’s incentive, rather than the relaxed financing constraints, is the underlying channel for the reduced negative impact of debt on innovation after CDS trading.

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

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The Interdependence of Debt and Innovation Sustainability: Evidence from the Onset of Credit Default Swaps

Chen

Zhang

2019

Sustainability

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“…On the flip side of the same coin, the weakened monitoring by lenders can benefit shareholders if the borrowing firm can take actions that improve shareholder wealth, which were previously constrained by lender monitoring (Chang et al 2017;Campello and Matta 2012;Acharya and Ryan, 2016;Jensen and Meckling, 1976). Given their limited liability and infinite upside potential, shareholders' equity is synonymous with a call option with face-value of debt as the strike price.…”

Section: Introductionmentioning

confidence: 99%

Heightened Shareholder Interest in Firm Affairs Following the Inception of Credit Default Swap Trade

2017

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The literature shows that a lender reduces its monitoring of client activities and decreases the accommodation it offers to a distressed client after the lender receives insurance on its outstanding client debt via a credit default swap (CDS). These changes in lender behavior can exacerbate downside risk but can also create upside potential for the reference firm's shareholders. We predict that the firm's shareholders, being the residual claimholders, would then increase their interest in firm affairs, by demanding improved corporate governance and the quality of financial reports. We find an increase in independence of the board of directors and a decline in the dual position of chief executive officer and board chairman following the onset of CDS trading. We also find higher earnings response coefficient and trading volumes around the earnings announcement dates and lower post-earnings announcement drift. Overall, our results suggest that shareholders demand and obtain higher quality of, or pay greater attention to, financial reports in the years following the onset of CDS trading.

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How does digitization enable green innovation? Evidence from Chinese listed companies

Chen,

Zhu,

Cheung

et al. 2024

Bus Strat Env

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The coordinated development of digitization and greening is an essential requirement for the sustainable development of the global economy. With the rapid development of the digital economy, enterprises are facing a new external environment for green innovation. This paper uses the robust principal component analysis method to construct the digital economy development index for Chinese prefecture‐level or above cities from 2012 to 2019 and examines the impact of the digital economy on corporate green innovation. It is found that the development of the digital economy can stimulate corporate green innovation by alleviating financing constraints, improving internal control, and reducing environmental uncertainty. This study further reveals that both increasing government environmental regulation and stronger judicial guarantees can enhance the positive impact of digitization. This research aims to provide inspiration and reference on how better to integrate digital economy development and corporate green innovation.

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Credit default swaps and corporate innovation

Abstract: Please refer to published version for the most recent bibliographic citation information. If a published version is known of, the repository item page linked to above, will contain details on accessing it.

Cited by 193 publications

References 97 publications

The Interdependence of Debt and Innovation Sustainability: Evidence from the Onset of Credit Default Swaps

The Interdependence of Debt and Innovation Sustainability: Evidence from the Onset of Credit Default Swaps

Heightened Shareholder Interest in Firm Affairs Following the Inception of Credit Default Swap Trade

How does digitization enable green innovation? Evidence from Chinese listed companies

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