Credit Default Swaps, Exacting Creditors and Corporate Liquidity Management

Marti G. Subrahmanyam, Dragon Yongjun Tang and Sarah Qian Wang
Additional contact information
Marti G. Subrahmanyam: Stern School of Business, New York University
Dragon Yongjun Tang: Faculty of Business and Economics, University of Hong Kong
Sarah Qian Wang: Warwick Business School, University of Warwick

No 202016, Working Papers from Hong Kong Institute for Monetary Research

Abstract: We investigate the liquidity management of firms following the inception of credit default swaps (CDS) markets on their debt, which allow hedging and speculative trading on credit risk to be carried out by creditors and other parties. We find that reference firms hold more cash after CDS trading commences on their debt. The increase in cash holdings is more pronounced for CDS firms that do not pay dividends and have a higher marginal value of liquidity. For CDS firms with higher cash ow volatility, these increased cash holdings do not entail higher leverage. Overall, our findings are consistent with the view that CDS-referenced firms adopt more conservative liquidity policies to avoid negotiations with more exacting creditors.

Keywords: Credit default swaps; Cash; Liquidity; Empty creditors (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2016-12
New Economics Papers: this item is included in nep-ban and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hkimr.org/uploads/publication/454/wp201620.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://hkimr.org/uploads/publication/454/wp201620.pdf [301 Moved Permanently]--> http://www.aof.org.hk/research/HKIMR/uploads/publication/454/wp201620.pdf [301 Moved Permanently]--> https://www.aof.org.hk/research/HKIMR/uploads/publication/454/wp201620.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:202016

Access Statistics for this paper

More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().