IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v59y2024i2p557-595_4.html
   My bibliography  Save this article

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

Author

Listed:
  • Liu, Jinyu
  • Ng, Jeffrey
  • Tang, Dragon Yongjun
  • Zhong, Rui

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.

Suggested Citation

  • Liu, Jinyu & Ng, Jeffrey & Tang, Dragon Yongjun & Zhong, Rui, 2024. "Withholding Bad News in the Face of Credit Default Swap Trading: Evidence from Stock Price Crash Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 59(2), pages 557-595, March.
    • Handle: RePEc:cup:jfinqa:v:59:y:2024:i:2:p:557-595_4
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S002210902300008X/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    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:cup:jfinqa:v:59:y:2024:i:2:p:557-595_4. 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: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    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.