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Withholding Bad News in the Face of Credit Default Swap Trading: Evidence from Stock Price Crash Risk.

Authors :
Liu, Jinyu
Ng, Jeffrey
Tang, Dragon Yongjun
Zhong, Rui
Source :
Journal of Financial & Quantitative Analysis; Mar2024, Vol. 59 Issue 2, p557-595, 39p
Publication Year :
2024

Abstract

Credit default swaps (CDSs) are a major financial innovation related to debt contracting. Because CDS markets facilitate bad news being incorporated into equity prices via cross-market information spillover, CDS availability may curb firms' information hoarding. We find that CDS trading on a firm's debt reduces the future stock price crash risk. This effect is stronger in active CDS markets, when the main lenders are CDS market dealers with securities trading subsidiaries, or when managers have more motivation to hoard information. Our findings suggest that debt market financial innovations curtail the negative equity market effects of firms withholding bad news. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
00221090
Volume :
59
Issue :
2
Database :
Complementary Index
Journal :
Journal of Financial & Quantitative Analysis
Publication Type :
Academic Journal
Accession number :
176147744
Full Text :
https://doi.org/10.1017/S002210902300008X