Credit default swap spreads and annual report readability

Nan Hu (), Ling Liu () and Lu Zhu ()
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Nan Hu: Xi’an Jiaotong University
Ling Liu: University of Wisconsin
Lu Zhu: California State University

Review of Quantitative Finance and Accounting, 2018, vol. 50, issue 2, No 8, 621 pages

Abstract: Abstract This paper investigates whether annual report readability matters to CDS market participants and how it affects their evaluation on a firm’s credit risk, as measured by CDS spreads. We find that the less readable the annual reports, the higher the CDS spreads. Furthermore, the impact of readability on CDS spreads is more concentrated on firms with high information asymmetry and with investment grade ratings. Our results suggest that investors take into account the readability in their view of the firms’ credit risk. Creditors appear to suffer higher cost on CDS protection of the debts if the underlying firms have less readable annual reports.

Keywords: Credit default swap (CDS); Credit risk; Annual report readability; 10-K (search for similar items in EconPapers)
JEL-codes: D82 G13 G14 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11156-017-0639-8

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