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The bullwhip effect and credit default swap market: A study based on firm-specific bullwhip effect measure

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  • Hu, Nan
  • Liang, Peng
  • Liu, Ling
  • Zhu, Lu

Abstract

This paper explores the financial implications of the bullwhip effect in the credit default swap (CDS) market. Using firms' supply chain hierarchical positions to proxy for exposure to the bullwhip effect and CDS positions data, we find that positions further upstream within the supply chain network are associated with more CDS positions with economically significant magnitudes, suggesting that investors employ CDS contracts to hedge against the financial risk of underlying firms that are exposed to a greater bullwhip effect. The positive impact of the bullwhip effect on CDS positions is more pronounced for firms with greater information uncertainty. Our results hold after we control for sample selection bias, rule out an industry-level bullwhip effect, mitigate the effect of hedging demand for accounts payable and debt exposure, and remove the influence of risk pooling, exposure to productivity shocks, and the financial crisis. This study contributes to both the supply chain management and finance literature.

Suggested Citation

  • Hu, Nan & Liang, Peng & Liu, Ling & Zhu, Lu, 2022. "The bullwhip effect and credit default swap market: A study based on firm-specific bullwhip effect measure," International Review of Financial Analysis, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003362
    DOI: 10.1016/j.irfa.2022.102386
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    More about this item

    Keywords

    Bullwhip effect; Credit default swap (CDS) positions; Supply chain hierarchy; Information uncertainty; The Depository Trust & Clearing Corporation (DTCC);
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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