Financial decisions involving credit default swaps over the business cycle

Gan, Liu; Yang, Zhaojun1,2

2024-04-01

10.1016/j.jedc.2024.104830

JOURNAL OF ECONOMIC DYNAMICS & CONTROL   影响因子和分区

0165-1889

1879-1743

We propose a modeling approach to disentangle how idiosyncratic and aggregate shocks shape the impact of credit default swaps (CDSs) on CDS firms' financial decisions. Our relatively parsimonious model highlights a novel mechanism contributing to CDS procyclicality. We show that CDSs postpone debt renegotiation and risk -taking investment. CDS firms have higher leverage ratios than non-CDS firms. CDS firms' leverage and credit spreads are counter -cyclical. CDS firms' debt overhang is less significant than non-CDS firms. CDSs can increase or decrease CDS firms' value, depending on macroeconomic conditions, idiosyncratic risk, and borrowers' bargaining power. Empirical studies verify some model predictions.

Credit default swaps CDS hedging Debt renegotiation Risk-taking Business cycles

SSCI

英语

通讯

National Natural Science Foundation of China["72031003","72161016"]

Business & Economics

Economics

WOS:001185224000001

ELSEVIER

ECONOMICS BUSINESS

Web of Science

1.Minjiang Univ, Newhuadu Business Sch, Fuzhou, Peoples R China
2.Southern Univ Sci & Technol, Dept Finance, Shenzhen, Peoples R China

Gan, Liu,Yang, Zhaojun. Financial decisions involving credit default swaps over the business cycle[J]. JOURNAL OF ECONOMIC DYNAMICS & CONTROL,2024,161.

Gan, Liu,&Yang, Zhaojun.(2024).Financial decisions involving credit default swaps over the business cycle.JOURNAL OF ECONOMIC DYNAMICS & CONTROL,161.

Gan, Liu,et al."Financial decisions involving credit default swaps over the business cycle".JOURNAL OF ECONOMIC DYNAMICS & CONTROL 161(2024).