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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 . doi:10.1016/j.jfineco.2017.12.012 (In Press)
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Official URL: https://doi.org/10.1016/j.jfineco.2017.12.012
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 |
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| 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: | 24 March 2019 | ||||||
| Dates: |
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| Date of first compliant deposit: | 20 December 2017 | ||||||
| DOI: | 10.1016/j.jfineco.2017.12.012 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | In Press | ||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||
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