Please use this identifier to cite or link to this item:

Heightened Shareholder Interest in Firm Affairs following the Inception of Credit Default Swap Trade

File Size Format  
HARC 2019 paper 200.pdf 1.22 MB Adobe PDF View/Open

Item Summary

Title:Heightened Shareholder Interest in Firm Affairs following the Inception of Credit Default Swap Trade
Authors:Ryou, Ji Woo
Hong, Hyun A
Srivastava, Anup
Keywords:Credit default swap
Agency conflict
Corporate governance
Financial reporting quality
Date Issued:01 Sep 2018
Abstract:The literature shows that a lender reduces its monitoring of client activities and decreases the accommodation it offers to a distressed client after the lender receives insurance on its outstanding client debt via a credit default swap (CDS). These changes in lender behavior can exacerbate downside risk but can also create upside potential for the reference firm’s shareholders. We predict that the firm’s shareholders, being the residual claimholders, would then increase their interest in firm affairs, by demanding improved corporate governance and the quality of financial reports. We find an increase in independence of the board of directors and a decline in the dual position of chief executive officer and board chairman following the onset of CDS trading. We also find higher earnings response coefficient and trading volumes around the earnings announcement dates and lower post–earnings announcement drift. Overall, our results suggest that shareholders demand and obtain higher quality of, or pay greater attention to, financial reports in the years following the onset of CDS trading.
Appears in Collections: 12 Financial: Financial reporting quality/Earnings smoothing

Please email if you need this content in ADA-compliant format.

Items in ScholarSpace are protected by copyright, with all rights reserved, unless otherwise indicated.