How Credit Default Swaps Affect Managers’ Voluntary Disclosure

Credit Default Swaps (CDSs) enable lenders to distribute credit risk to parties more willing and able to bear it, thereby enhancing the liquidity and flexibility of individual lenders and the financial system (Greenspan 2004). However, empirical evidence suggests that CDSs lead to a significant decline in the rigor and efficiency of monitoring by lenders (e.g., Ashcraft and Santos, 2009; Parlour and Winton 2013; Subrahmanyam, Tang, and Wang 2014). In our paper, “Credit Default Swaps and Managers’ Voluntary Disclosure,” we predict and find that CDS reference firms enhance their voluntary disclosure to offset the negative effect of reduced  lender … Read more