The role of credit default swaps in determining corporate payout policy

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We examine how the introduction of credit default swap (CDS) trading on the debt of individual firms affects corporate payout policy. We find that firms increase payouts to shareholders after the introduction of CDS trading on their debt. This suggests that CDS-referenced firms are more likely to be affected by decreased creditor monitoring than by tougher CDS-insured creditors when determining total payout amount. Moreover, the increase in payouts after CDS introduction is more pronounced in firms with smaller institutional ownership and greater bank debt dependency. Finally, we show that CDS-referenced firms tend to prefer stock repurchases that have a financial flexibility advantage over dividends to protect against the potential threat of tougher CDS-insured creditors.
Publisher
WILEY
Issue Date
2022-06
Language
English
Article Type
Article
Citation

FINANCIAL MANAGEMENT, v.51, no.2, pp.635 - 661

ISSN
0046-3892
DOI
10.1111/fima.12381
URI
http://hdl.handle.net/10203/296853
Appears in Collection
MT-Journal Papers(저널논문)
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