My credit but your problem: the real effects of credit risk trading / Stefano Colonnello, Matthias Efing, Francesca Zucchi
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My credit but your problem: the real effects of credit risk trading
Discovery
855938374
URN
urn:nbn:de:gbv:3:2-53373
DOI
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Publication history
Halle (Saale), Germany : Halle Institute for Economic Research (IWH), March 2016
Content
1 Online-Ressource (37 Seiten, VI = 0,9 MB)
Edition
Language
eng
Comment
Abstract
Creditors are increasingly transferring debt cash flow rights to other market participants while retaining control rights. We use the market for credit default swaps (CDSs) as a laboratory to show that such debt decoupling causes large adverse effects on firms whose shareholders have high bargaining power. After the start of CDS trading, the distance-to-default, investment, and market value of firms with powerful shareholders drop by 7.9%, 7%, and 8.8% compared to other firms. These findings are consistent with an "empty creditor problem" where creditors overinsure to strengthen their position in negotiations with powerful shareholders.
Series
IWH-Diskussionspapiere ; no. 10/2016 ppn:837399270