Financial Innovation and Financial Intermediation: Evidence from Credit Default Swaps-Reference-Cited by-同舟云学术

Financial Innovation and Financial Intermediation: Evidence from Credit Default Swaps

Published:2021-05 Issue:5 Volume:67 Page:3150-3173
ISSN:0025-1909
Container-title:Management Science
language:en
Short-container-title:Management Science

Author:

Butler Alexander W.¹^ORCID,Gao Xiang²,Uzmanoglu Cihan³

Affiliation:

1. Jones Graduate School of Business, Rice University, Houston, Texas 77005;

2. University of North Dakota, Grand Forks, North Dakota 58203;

3. Binghamton University, Binghamton, New York 13902

Abstract

We study the influence of credit default swaps (CDS) trading on the costs of bond intermediation. After CDS initiation, CDS firms pay 12% to 28% (8 to 20 basis points) lower underwriting fees than similar non-CDS firms do. Underwriting fees decline more for riskier issuers and illiquid bonds for which the ability to hedge with CDS is more valuable. In bond offerings, participation by investors facing risk-based regulatory requirements increases after CDS initiation. Our evidence suggests that CDS-driven innovations in risk sharing contribute to the transactional efficiency of the market by reducing the financial intermediation costs of placing bonds. This paper was accepted by Karl Diether, finance.

Publisher

Institute for Operations Research and the Management Sciences (INFORMS)

Subject

Management Science and Operations Research,Strategy and Management

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2. Financial Constraints, Asset Tangibility, and Corporate Investment

3. Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs

4. FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY

5. Illiquidity and stock returns: cross-section and time-series effects

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