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Testing the Transparency Implications of Mandatory IFRS Adoption: The Spread/Maturity Relation of Credit Default Swaps

46 Pages Posted: 24 Jun 2014 Last revised: 30 Jul 2015

Gauri Bhat

Southern Methodist University (SMU) - Accounting Department

Jeffrey L. Callen

University of Toronto - Rotman School of Management

Dan Segal

Interdisciplinary Center (IDC) Herzliyah

Multiple version iconThere are 2 versions of this paper

Date Written: July 2015

Abstract

This study tests whether IFRS adoption increased accounting transparency based on model-driven hypotheses. Duffie and Lando (2001) show that changes to accounting transparency affect the spread/maturity relation of CDS instruments in very specific ways. Consistent with their model, we find that CDS spreads are lower across maturities following the adoption of IFRS, and the slope and concavity of the CDS spread/maturity relation are higher. These changes did not occur to the spread/maturity relation of a control sample of CDS instruments. Predicted changes apply more intensely to firms with low pre-IFRS transparency. Overall, this study provides strong evidence that IFRS adoption increased accounting transparency.

Keywords: Credit Default Swaps, Credit Risk, Maturity, IFRS

JEL Classification: M40, M41, G13, G20

Suggested Citation

Bhat, Gauri and Callen, Jeffrey L. and Segal, Dan, Testing the Transparency Implications of Mandatory IFRS Adoption: The Spread/Maturity Relation of Credit Default Swaps (July 2015). Rotman School of Management Working Paper No. 2457725. Available at SSRN: https://ssrn.com/abstract=2457725 or http://dx.doi.org/10.2139/ssrn.2457725

Gauri Bhat

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-7682964 (Phone)

Jeffrey Callen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-5641 (Phone)
416-971-3048 (Fax)

Dan Segal (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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