Download This PaperCredit Risk and IFRS: The Case of Credit Default Swaps
51 Pages Posted: 6 Aug 2010 Last revised: 18 Feb 2014
Date Written: February 16, 2014
Abstract
This study compares the pricing of credit risk information conveyed by accounting numbers under IFRS relative to local GAAP. We measure the price of credit risk by CDS spreads and focus on three fundamental accounting metrics that inform about credit risk: earnings, leverage and book value equity. Using a difference in differences methodology, we find that while earnings, book value and, to a lesser extent, leverage are significant determinants of credit risk pricing both prior to and after IFRS adoption, the adoption of IFRS did not change the credit risk informativeness of these accounting variables as reflected in CDS spreads. This conclusion is robust to controlling for institutional differences among countries as well as a battery of sensitivity analyses.
Keywords: Credit Default Swaps, Credit Risk, IFRS
JEL Classification: M41
Suggested Citation: Suggested Citation
Jeffrey L. Callen (Contact Author)
University of Toronto - Rotman School of Management ( email )
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