IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v27y2014i10p2927-2960..html
   My bibliography  Save this article

Does the Tail Wag the Dog?: The Effect of Credit Default Swaps on Credit Risk

Author

Listed:
  • Marti G. Subrahmanyam
  • Dragon Yongjun Tang
  • Sarah Qian Wang

Abstract

We use credit default swaps (CDS) trading data to demonstrate that the credit risk of reference firms, reflected in rating downgrades and bankruptcies, increases significantly upon the inception of CDS trading, a finding that is robust after controlling for the endogeneity of CDS trading. Additionally, distressed firms are more likely to file for bankruptcy if they are linked to CDS trading. Furthermore, firms with more "no restructuring" contracts than other types of CDS contracts (i.e., contracts that include restructuring) are more adversely affected by CDS trading, and the number of creditors increases after CDS trading begins, exacerbating creditor coordination failure in the resolution of financial distress.

Suggested Citation

  • Marti G. Subrahmanyam & Dragon Yongjun Tang & Sarah Qian Wang, 2014. "Does the Tail Wag the Dog?: The Effect of Credit Default Swaps on Credit Risk," The Review of Financial Studies, Society for Financial Studies, vol. 27(10), pages 2927-2960.
    • Handle: RePEc:oup:rfinst:v:27:y:2014:i:10:p:2927-2960.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhu038
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:27:y:2014:i:10:p:2927-2960.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.