Creditor Control Rights and the Non-Synchronicity of Global Corporate CDS Excess Returns

69 Pages Posted: 19 Feb 2019

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Miriam Marra

University of Reading - ICMA Centre

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration

Date Written: March 28, 2019

Abstract

This paper traces non-synchronicity of corporate credit default swap (CDS) spreads in a multi-factor international asset pricing setting. Evidence portrays a significant role of country-level creditor control rights (CR) inversely affecting CDS non-synchronicity and thereby firm-specific information production. This could reflect a weakened monitoring incentive by creditors or debtors strategically disclosing information to avoid creditors’ intervention. This “dark side” of CR are concentrated in firms with a high level of firm risk, investment intensity, and information opacity. Additionally, local cultural attitudes, e.g., trust and uncertainty tolerance, intensify the adverse effects of CR. A difference-in-difference analysis shows that exogenous pro-creditor reforms lead to an economically sizeable decline in CDS non-synchronicity, confirming the cross-country evidence.

Keywords: Creditor Control Rights, Credit Default Swap, Non-Synchronicity

JEL Classification: G14, G15, G33

Suggested Citation

Hasan, Iftekhar and Marra, Miriam and Wu, Eliza and Zhang, Gaiyan, Creditor Control Rights and the Non-Synchronicity of Global Corporate CDS Excess Returns (March 28, 2019). Available at SSRN: https://ssrn.com/abstract=3336943

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Miriam Marra (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration ( email )

One University Blvd
St. Louis, MO 63121
United States

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