Credit Default Swap Spreads and Annual Report Readability

Posted: 30 May 2015

See all articles by Nan Hu

Nan Hu

Stevens Institute of Technology - School of Business; Xi'an Jiaotong University (XJTU) - School of Management

Ling Liu

University of Wisconsin Eau Claire

Lu Zhu

California State University, Long Beach - College of Business Administration

Date Written: January 30, 2015

Abstract

We examine the relationship between CDS spreads and annual report readability in this paper. Our results suggest that annual report readability is negatively related to CDS spreads. Furthermore, on the information supply side, the effect of readability on CDS spreads is more concentrated on firms with high analyst coverage. On the information demand side, the impact of readability on CDS spreads is more concentrated on firms with high information asymmetry. Results are robust to endogeneity issues and different subsamples. Our results suggest that investors appear to take into account the information transparency in their view of the firms’ default risk.

Keywords: Credit Default Swap (CDS); Credit Risk; Annual Report Readability; Information Transparency

JEL Classification: G13,G14,D82

Suggested Citation

Hu, Nan and Hu, Nan and Liu, Ling and Zhu, Lu, Credit Default Swap Spreads and Annual Report Readability (January 30, 2015). Available at SSRN: https://ssrn.com/abstract=2611646 or http://dx.doi.org/10.2139/ssrn.2611646

Nan Hu

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Ling Liu (Contact Author)

University of Wisconsin Eau Claire ( email )

Eau Claire, WI 54702
United States

Lu Zhu

California State University, Long Beach - College of Business Administration ( email )

1250 Bellflower Blvd.
Long Beach, CA 90840
United States

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