Credit default swaps and firm risk-Reference-Cited by-同舟云学术

Credit default swaps and firm risk

Published:2023-07-17 Issue:11 Volume:43 Page:1668-1692
ISSN:0270-7314
Container-title:Journal of Futures Markets
language:en
Short-container-title:Journal of Futures Markets

Author:

Lin Hai¹^ORCID,Nguyen Binh Hoang²^ORCID,Wang Junbo³,Zhang Cheng⁴^ORCID

Affiliation:

1. School of Economics and Finance Victoria University of Wellington Wellington New Zealand

2. The Business School RMIT University Vietnam Campus Ho Chi Minh City Vietnam

3. Department of Economics and Finance City University of Hong Kong Kowloon Hong Kong

4. Reiman School of Finance, Daniels College of Business University of Denver Denver Colorado USA

Abstract

AbstractThis study investigates how initiating a credit default swap (CDS) affects firm risk. Using the firm value volatility as a measure of firm risk, we document that firm risk decreases following the commencement of CDS trading. Further analysis indicates that the empty creditor channel, which arises when a debt holder with CDS protection has no interest in preserving the company it provides funds, is the primary way of influence. Our findings reveal a significant impact of financial innovation on a firm's behavior. We also document that market frictions affect the degree of such effect.

Publisher

Wiley

Subject

Economics and Econometrics,Finance,General Business, Management and Accounting,Accounting

Link

https://onlinelibrary.wiley.com/doi/pdf/10.1002/fut.22452

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