The Information Content of Ratings: An Analysis of Australian Credit Default Swap Spreads

Wang, Jue; Švec, Jiří; Peat, Maurice

doi:10.1111/abac.12022

Cited by 10 publications

(11 citation statements)

References 24 publications

(45 reference statements)

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“…() and Wang et al . () also find an increase in CDS spreads up to 90 days ahead of a ratings downgrade, review for downgrade and a negative outlook event . Blanco et al .…”

Section: Empirical Literaturementioning

confidence: 78%

The market for credit default swaps: new insights into investors' use of accounting information?

Griffin

2014

Accounting & Finance

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The market for credit default swaps has developed into a well-functioning, global multi-trillion dollar market, wherein investors price and transfer corporate financial instruments on the basis of credit risk. This paper first summarizes the structure and growth of the market. Next, I introduce theory and evidence on how investors price credits risk and explain how the quality of financial statement information plays a unique role in the determination of credit spread. I then review the nascent empirical accounting literature on this topic. This review sheds light on several accounting research questions that might be understood better in the setting of the credit default swap market. The final section summarizes suggestions for future work.

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“…() and Wang et al . () also find an increase in CDS spreads up to 90 days ahead of a ratings downgrade, review for downgrade and a negative outlook event . Blanco et al .…”

Section: Empirical Literaturementioning

confidence: 78%

The market for credit default swaps: new insights into investors' use of accounting information?

Griffin

2014

Accounting & Finance

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“…Our survey results are inconsistent with the indirect results from two empirical studies relating to credit ratings. For example, Dang and Partington (2014) find that the historical credit rating plays a more important role in predicting the next rating change than current rating, and Wang, Svec and Peat (2014) find that the movement in credit rating events contains value-relevant information in Australia.…”

Section: Do Firms Have Target Credit Ratings?mentioning

confidence: 99%

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

2015

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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“…Wang et al . () find that credit rating announcements have significant impact on CDS spread changes. As mentioned previously, due to both CDSs and credit ratings being driven by the credit quality of the underlying asset, credit ratings published by rating agencies, are used as a proxy for the credit risk of issuers and issues.…”

Section: Econometric Model and Datamentioning

confidence: 96%

The role of managerial risk‐taking in the ‘rise and fall’ of the CDS market

Dias

2015

Accounting & Finance

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Since the innovation of credit default swaps (CDSs) in 1997, the market for CDSs grew dramatically to $62 trillion in 2007 (ISDA 2010). However, this market declined significantly with the onset of the GFC, prompting the question, 'What lies behind the phenomenal growth and the eventual collapse of the CDS market?' Using CDS spread data from 319 bank and non-bank financial institutions across 33 countries over the period 2001-2010, I provide evidence of the determinants that affect risk-taking by financial institutions, proxied by CDS spreads, and argue within an agency theoretical framework that managerial risk-taking contributed to the 'rise and fall' of the CDS market.

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The Information Content of Ratings: An Analysis of Australian Credit Default Swap Spreads

Cited by 10 publications

References 24 publications

The market for credit default swaps: new insights into investors' use of accounting information?

The market for credit default swaps: new insights into investors' use of accounting information?

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

The role of managerial risk‐taking in the ‘rise and fall’ of the CDS market

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