Date of Award
9-7-2015
Degree Type
Thesis
Degree Name
Master of Philosophy (MPHIL)
Department
Finance and Insurance
First Advisor
Prof. POON Pui-han, Winnie
Abstract
Credit Default Swaps (CDSs) play an important role in the financial markets. The introduction of CDSs has impacts on the bond market, and the financial characteristics and creditworthiness of the underlying reference entities. When financing is not frictionless, the investment policies of firms are related to their financial conditions. However, whether or how the introduction of CDS will directly affect the investment policy of the firm has not been examined empirically in the literature. To shed light on this issue, my study investigates the relation between credit default swaps trading and corporate investment policy for the listed firms in the United States using the data of CDS reference entities from 2002 to 2014. I find that the introduction of CDSs is negatively related to the investment decisions of reference entities. Furthermore, the relation is more significant when the reference entities have financial constraints and depend more on external credit supply. Overall, when a listed firm becomes a CDS reference entity, the probability of its underinvestment will increase. The study contributes not only to the growing literature on the relationship between CDS introduction and the reference firm, but also to the literature on corporate investment policy making.
Copyright
The copyright of this thesis is owned by its author. Any reproduction, adaptation, distribution or dissemination of this thesis without express authorization is strictly prohibited.
Recommended Citation
Xue, X. (2015). The impact of credit default swaps on corporate investment policy (Master's thesis, Lingnan University, Hong Kong). Retrieved from http://commons.ln.edu.hk/fin_etd/14/
Comments
Per author's instruction, fulltext access embargoed until November 1, 2017.