Impact of Credit Default Swaps on Firms’ Operational Efficiency

Production and Operations Management, Forthcoming

51 Pages Posted: 8 Jun 2022

See all articles by Liangfei Qiu

Liangfei Qiu

University of Florida - Warrington College of Business Administration

Ruiqi Liu

Hong Kong Polytechnic University

Yong Jin

The Hong Kong Polytechnic University

Chao Ding

The University of Hong Kong - School of Business

Yangyang Fan

Hong Kong Polytechnic University - School of Accounting and Finance

Andy Yeung

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Date Written: June 3, 2022

Abstract

As one of the most important financial innovations in the last two decades, credit default swap (CDS) contracts have been initiated and actively traded in the market to hedge against credit risks. However, little is known about how these financial innovations affect an underlying firm’s operations. In this empirical study, we find that an underlying firm’s operational efficiency is significantly improved with the inception of CDS trading. Our results are robust to multiple causal identification strategies. Further analysis suggests that the inception of CDS tends to enhance the operational efficiency of a firm through the supply chain financing capability and trade credit. We also postulate that CDS leads to enhanced efficiency through institutional monitoring and improvements in management effectiveness. We then obtain suggestive evidence. Our findings have direct implications concerning the ongoing policy debate surrounding CDS. We contribute to operations management research by exploring how innovations in the financial market would, in turn, affect the operational performance of firms.

Keywords: Financial Innovations, Credit Default Swaps, Operational Efficiency, Supply Chain Finance, Institutional Monitoring

Suggested Citation

Qiu, Liangfei and Liu, Ruiqi and Jin, Yong and Ding, Chao and Fan, Yangyang and Yeung, Andy, Impact of Credit Default Swaps on Firms’ Operational Efficiency (June 3, 2022). Production and Operations Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4127352

Liangfei Qiu (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/qiuliangfei/

Ruiqi Liu

Hong Kong Polytechnic University ( email )

Yong Jin

The Hong Kong Polytechnic University ( email )

Hong Kong

Chao Ding

The University of Hong Kong - School of Business ( email )

Pok Fu Lam
Hong Kong

Yangyang Fan

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Andy Yeung

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

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