Credit Default Swaps, Strategic Default, and the Cost of Corporate Debt

2013 ◽  
Author(s):  
Gi H. Kim
Keyword(s):  
Credit Default Swaps ◽  
Corporate Debt ◽  
Strategic Default ◽  
Credit Default ◽  
The Cost

Credit Default Swaps and the Cost of Capital

2020 ◽  
Author(s):  
Harjeet Bhabra ◽  
Pascal Francois ◽  
Thomas John Walker ◽  
Chunrong Wang
Keyword(s):  
Cost Of Capital ◽  
Credit Default Swaps ◽  
Credit Default ◽  
The Cost

scholarly journals Credit Market Speculation and the Cost of Capital

2014 ◽  
Vol 6 (4) ◽  
pp. 1-34 ◽  
Author(s):  
Yeon-Koo Che ◽  
Rajiv Sethi
Keyword(s):  
Multiple Equilibria ◽  
Cost Of Capital ◽  
Credit Derivatives ◽  
Credit Market ◽  
Credit Default Swaps ◽  
Cost Of Debt ◽  
Insurable Interest ◽  
Rollover Risk ◽  
Credit Default ◽  
The Cost

We examine the effects of speculation using credit derivatives on the cost of debt and the likelihood of default. The availability of credit default swaps induces investors who are optimistic about borrower revenues to sell protection instead of buying bonds. This benefits borrowers if protection can only be bought with an insurable interest, but can increase the cost of debt and crowd out productive lending if protection can be purchased as a bet on default. We also show that the possibility of speculation on default may cause multiple equilibria and exacerbate the problem of rollover risk. (JEL D86, G13, G31)

Credit Default Swaps on Corporate Debt and the Pricing of Audit Services

2017 ◽  
Vol 37 (3) ◽  
pp. 117-144 ◽  
Author(s):  
Lijing Du ◽  
Adi Masli ◽  
Felix Meschke
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Credit Default Swaps ◽  
Corporate Debt ◽  
Professional Skepticism ◽  
External Auditors ◽  
Corporate Default ◽  
Audit Fee ◽  
Credit Default ◽  
Jel Classifications

SUMMARY Previous studies document that lenders lack incentives to monitor borrowing firms or to make concessions during bankruptcy if these lenders insure against corporate default with credit default swaps (CDS). This article investigates whether external auditors increase their audit fees for those client firms that have their debt referenced by CDS. In a comprehensive sample of U.S. companies from 2001–2015, we find that CDS-referenced companies incur larger audit fees compared to companies without CDS. The economic magnitude of the audit fee increase ranges from 5.4 percent to 11 percent, depending on the econometric specification employed. Deteriorating corporate conditions or other observable characteristics do not explain the positive association between CDS trading and audit fees, or the increase in audit fees following CDS initiations. The findings suggest that auditors increase their professional skepticism and monitoring efforts of CDS-referenced clients; they might also expect higher liability losses. JEL Classifications: G10; G30; G33; G34.

Credit Default Swaps and Firm Value

2018 ◽  
Vol 53 (3) ◽  
pp. 1227-1259 ◽  
Author(s):  
Rajesh Narayanan ◽  
Cihan Uzmanoglu
Keyword(s):  
Firm Value ◽  
Cost Of Capital ◽  
Credit Default Swaps ◽  
Cash Flows ◽  
Stock Liquidity ◽  
Credit Quality ◽  
Credit Default ◽  
Incremental Information ◽  
The Cost ◽  
Free Cash Flows

This article provides evidence that firm value declines when credit default swaps (CDSs) are initiated and that the effect is greater when CDS trading activity is higher. This decline, which arises from an increase in the cost of capital as opposed to a decrease in free cash flows, traces to a deterioration in the firm’s credit quality and stock liquidity. Firm value declines less when CDS trading is likely to produce incremental information, suggesting that CDS trading has informational benefits for firm value. However, the evidence does not indicate that firm value increases because CDS availability facilitates investments.

Credit Default Swaps and Corporate Debt Structure

2018 ◽  
Author(s):  
Yangyang Chen ◽  
Walid Saffar ◽  
Chenyu Shan ◽  
Sarah Qian Wang
Keyword(s):  
Credit Default Swaps ◽  
Corporate Debt ◽  
Debt Structure ◽  
Credit Default
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