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Credit default swaps and corporate innovation

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Chang, Xin, Chen, Yangyang, Wang, Sarah Qian, Zhang, Kua and Zhang, Wenrui (2019) Credit default swaps and corporate innovation. Journal of Financial Economics, 134 (2). pp. 474-500. doi:10.1016/j.jfineco.2017.12.012

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Official URL: https://doi.org/10.1016/j.jfineco.2017.12.012

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Abstract

We show that credit default swap (CDS) trading on a firm’s debt positively influences its technological innovation output measured by patents and patent citations. This positive effect is more pronounced in firms relying more on debt financing or being more subject to continuous monitoring by lenders prior to CDS trade initiation. Moreover, after CDS trade initiation, firms pursue more risky and original innovations and generate patents with higher economic value. Further analysis suggests that CDSs improve borrowing firms’ innovation output by enhancing lenders’ risk tolerance and borrowers’ risk taking in the innovation process rather than by increasing R&D investment. Taken together, our findings reveal the real effects of CDSs on companies’ investments and technological progress.

Item Type: Journal Article
Subjects: H Social Sciences > HD Industries. Land use. Labor
Divisions: Faculty of Social Sciences > Warwick Business School > Finance Group
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Corporations -- Technological innovations, Derivative securities
Journal or Publication Title: Journal of Financial Economics
Publisher: Elsevier Science BV
ISSN: 0304-405X
Official Date: November 2019
Dates:
DateEvent
November 2019Published
24 March 2019Available
3 December 2017Accepted
Volume: 134
Number: 2
Page Range: pp. 474-500
DOI: 10.1016/j.jfineco.2017.12.012
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
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