Internal Governance and Creditor Governance: Evidence from Credit Default Swaps

51 Pages Posted: 28 Apr 2013 Last revised: 17 Dec 2016

See all articles by Stefano Colonnello

Stefano Colonnello

Ca Foscari University of Venice; Halle Institute for Economic Research

Date Written: December 16, 2016

Abstract

I study the relation between internal governance and creditor governance. A deterioration in creditor governance may increase the agency costs of debt and managerial opportunism at the expense of shareholders. I exploit the introduction of credit default swaps (CDS) as a negative shock to creditor governance. I provide evidence consistent with shareholders pushing for a substitution effect between internal governance and creditor governance. Following CDS introduction, CDS firms reduce managerial risk-taking incentives relative to other firms. At the same time, after the start of CDS trading, CDS firms increase managerial wealth-performance sensitivity, board independence, and CEO turnover performance-sensitivity relative to other firms.

Keywords: Creditor Governance, Credit Default Swaps, Empty Creditors

JEL Classification: G32, G34

Suggested Citation

Colonnello, Stefano, Internal Governance and Creditor Governance: Evidence from Credit Default Swaps (December 16, 2016). Available at SSRN: https://ssrn.com/abstract=2254620 or http://dx.doi.org/10.2139/ssrn.2254620

Stefano Colonnello (Contact Author)

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
92
Abstract Views
948
rank
382,274
PlumX Metrics