The effects of credit default swaps on corporate investment

Jieying Hong and Na Wang

The European Journal of Finance, 2021, vol. 27, issue 3, 260-277

Abstract: This paper examines how credit default swaps (CDS) affect the corporate investment of the referenced entities. We document a significant reduction in corporate investment after CDS trading, a result that is robust to alternative model specifications and a set of endogeneity tests. Our findings of the increased firm risk and cost of capital support the costly external capital channel. The cross-sectional variations in CDS effects demonstrate that both reduced monitoring and the empty creditor problem might be the underlying forces driving the costly external capital channel. Our additional analysis implies that CDS trading is associated with an enhancement in investment efficiency for firms that are prone to overinvestment.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2020.1806092 (text/html)
Access to full text is restricted to subscribers.

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:taf:eurjfi:v:27:y:2021:i:3:p:260-277

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2020.1806092

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().