Credit Risk Transfer with Single-Name Credit Default Swaps

Culp, Christopher L.; Merwe, Andria van der; Stärkle, Bettina J.

doi:10.1007/978-3-319-59297-8_6

Cited by 3 publications

(2 citation statements)

References 16 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…However, we believe this data limitation does not significantly affect the generalization of the conclusions because CDS trading volume and notional amounts outstanding have shrunk appreciably after 2012 (Culp et al. 2016). Similarly, Batta and Yu (2019) also find that the CDS market has become less active after 2012.…”

mentioning

confidence: 93%

Cross‐market information transmission along the supply chain network

Fang

Liang

et al. 2023

Production and Operations Management

View full text Add to dashboard Cite

In this paper, we investigate whether and how investors of suppliers learn from the private information embedded in the customer credit default swap (CDS) market prior to customer earnings announcements. We find that investors of suppliers indeed incorporate the customer private information revealed in the CDS market into the supplier valuation, thereby leading to significant changes in suppliers' future stock prices. Moreover, such price discovery effect is more pronounced when: (i) the level of customer private information revealed in the CDS market is more prominent; (ii) the customer bond market is more illiquid; (iii) the customers are expected to report bad earnings news or experience deteriorated credit conditions; (iv) the strength of the suppliercustomer economic bond is stronger. Our results remain robust when we control for the supplier's own CDS market price discovery effect or conduct matched sample analyses. Finally, utilizing the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) as an exogenous shock, we show that the effect of customer CDS trading on suppliers' future stock prices is less pronounced after the Dodd-Frank Act due to more explicit regulation on informed trading activities. Overall, our study documents significant cross-market information transmission along the supply chain network (i.e., from the customer derivative market to the supplier equity market).

show abstract

mentioning

confidence: 93%

Cross‐market information transmission along the supply chain network

Fang

Liang

et al. 2023

Production and Operations Management

View full text Add to dashboard Cite

show abstract

“…CDS have been the subject of several researches that reviewed the findings of impact studies. Many review studies, for example, focused on the role of CDS during pre‐ and post‐global financial period and provided its thorough understanding (Augustin et al., 2014, 2016; Culp et al., 2016; Dias, 2016; Lando, 2020; Stulz, 2010). Another strand of literature emphasized the nuances of CDS contracts structure using accounting and insurance studies as a base (Griffin, 2014; Jarrow, 2011).…”

Section: Introductionmentioning

confidence: 99%

Why do banks use credit default swaps (CDS)? A systematic review

Tabassum

Yameen

2023

Journal of Economic Surveys

View full text Add to dashboard Cite

Credit default swaps (CDS)—the fiercely discussed derivatives instrument since the explosion of the recent global credit crunch—are still subject to considerable theoretical and practical debate. More than a decade after significant developments in CDS literature, we currently lack a holistic understanding of the disparate strands of evidence, synthesizing analytical advancements in the field. We, therefore, conducted a systematic review of 143 publications (peer‐reviewed and first‐tier grey literature), focusing on three key areas: CDS characteristics and development, credit risk hedging, and determinants of CDS use, and performed the first bibliometric mapping for CDS. Our review makes the following contributions. First, measuring CDS characteristics and development gives a snapshot of how CDS remained a significant indicator for hedging corporate lending risk. Second, by mapping the research landscape, we provide insights into banks’ use of CDS; in particular, we show that banks use CDS to obtain capital relief, enhance liquidity and profitability, limit credit supply, and consequently mitigate their NPLs’ level. Moreover, the use of CDS by lenders increases firms’ leverage and value. Leaving a fertile area for debates and future research, the outcomes of this review help provide policy guidance to regulators and financial institutions that make informed decisions to use CDS as a credit risk management instrument.

show abstract

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

Chen

Zhang

2019

Sustainability

View full text Add to dashboard Cite

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.

show abstract

Credit Risk Transfer with Single-Name Credit Default Swaps

Cited by 3 publications

References 16 publications

Cross‐market information transmission along the supply chain network

Cross‐market information transmission along the supply chain network

Why do banks use credit default swaps (CDS)? A systematic review

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

Contact Info

Product

Resources

About