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Internal governance and creditor governance: Evidence from credit default swaps

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  • Colonnello, Stefano

Abstract

I study the relation between internal governance and creditor governance. A deterioration in creditor governance may increase the agency costs of debt and managerial opportunism at the expense of shareholders. I exploit the introduction of credit default swaps (CDS) as a negative shock to creditor governance. I provide evidence consistent with shareholders pushing for a substitution effect between internal governance and creditor governance. Following CDS introduction, CDS firms reduce managerial risk-taking incentives relative to other firms. At the same time, after the start of CDS trading, CDS firms increase managerial wealth-performance sensitivity, board independence, and CEO turnover performance-sensitivity relative to other firms.

Suggested Citation

  • Colonnello, Stefano, 2017. "Internal governance and creditor governance: Evidence from credit default swaps," IWH Discussion Papers 6/2017, Halle Institute for Economic Research (IWH).
  • Handle: RePEc:zbw:iwhdps:62017
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    Cited by:

    1. Jongsub Lee & Junho Oh & David Yermack, 2017. "Credit Default Swaps, Agency Problems, and Management Incentives," NBER Working Papers 24064, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    creditor governance; credit default swaps; empty creditors;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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