Corporate Innovation and Credit Default Swap Spreads

Abstract

We use patent and credit default swap (CDS) data to examine whether corporate innovation affects credit market valuation. We find that innovation quantity, measured by the number of patents, is negatively associated with CDS spreads. Moreover, the relationship between the quality of innovation and CDS spreads is negative. Both the scientific value (based on patent citations) and economic value (based on stock market reaction) of innovation have a negative effect on CDS spreads, but the effect of economic value is more significant than that of scientific value. Overall, our study suggests that the performance of corporate innovation is reflected in credit market valuation.