Abstract

https://ssrn.com/abstract=2457725
 


 



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


Gauri Bhat


Southern Methodist University (SMU)

Jeffrey L. Callen


University of Toronto - Rotman School of Management

Dan Segal


Interdisciplinary Center (IDC) Herzliyah

July 2015

Rotman School of Management Working Paper No. 2457725

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.

Number of Pages in PDF File: 46

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

JEL Classification: M40, M41, G13, G20


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Date posted: June 24, 2014 ; Last revised: July 30, 2015

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

Contact Information

Gauri Bhat
Southern Methodist University (SMU) ( email )
6212 Bishop Blvd.
Dallas, TX 75275
United States
214-7682964 (Phone)
Jeffrey L. Callen
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
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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