How does credit risk affect cost management strategies? Evidence on the initiation of credit default swap and sticky cost behavior

• Main Authors: DAI, Jing, HU, Nan, HUANG, Rong, YAN, Yan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: Credit risk; Credit default swaps; Empty creditors; Cost management; Cost stickiness; Cost behavior; Corporate Finance; Databases and Information Systems; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/sis_research/7954; https://ink.library.smu.edu.sg/context/sis_research/article/8957/viewcontent/CreditRiskAffect_av.pdf
• Institution: Singapore Management University

In this paper, we examine the effect of credit defaults swaps (CDS) initiation on reference firms' cost management strategies. CDS contracts provide insurance protection for creditors, inducing a shift in bargaining power from borrowers to creditors and an excessive incidence of bankruptcy. Ant...