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The real effects of credit default swaps
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Danis, Andràs and Gamba, Andrea (2018) The real effects of credit default swaps. Journal of Financial Economics, 127 (1). pp. 51-76. doi:10.1016/j.jfineco.2017.10.005 ISSN 0304-405X.
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Official URL: https://doi.org/10.1016/j.jfineco.2017.10.005
Abstract
We examine the e↵ect of introducing credit default swaps (CDSs) on firm value. Our model allows for dynamic investment and financing, and bondholders can trade in the CDS market. The model incorporates both negative and positive e↵ects of CDSs. CDS markets lead to more liquidations, but they also reduce the probability of costly debt renegotiation, and reduce costly equity financing. After calibrating the model, we find that firm value increases by 2.9% on average with
the introduction of a CDS market. Firms also invest more and increase leverage. The effect on firm value is strongest for small, financially constrained, and lowproductivity firms.
| Item Type: | Journal Article | |||||||||
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| Subjects: | H Social Sciences > HG Finance | |||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School | |||||||||
| Library of Congress Subject Headings (LCSH): | Corporate bonds , Stocks, Liquidation , banktruptcy | |||||||||
| Journal or Publication Title: | Journal of Financial Economics | |||||||||
| Publisher: | Elsevier Science BV | |||||||||
| ISSN: | 0304-405X | |||||||||
| Official Date: | January 2018 | |||||||||
| Dates: |
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| Volume: | 127 | |||||||||
| Number: | 1 | |||||||||
| Page Range: | pp. 51-76 | |||||||||
| DOI: | 10.1016/j.jfineco.2017.10.005 | |||||||||
| Status: | Peer Reviewed | |||||||||
| Publication Status: | Published | |||||||||
| Access rights to Published version: | Restricted or Subscription Access | |||||||||
| Date of first compliant deposit: | 8 December 2016 | |||||||||
| Date of first compliant Open Access: | 20 April 2019 | |||||||||
| RIOXX Funder/Project Grant: |
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