Credit Default Swap Spreads and Annual Report Readability
Posted: 30 May 2015
Date Written: January 30, 2015
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
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