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Title: Credit default swaps and corporate innovation
Authors: Chang, Xin
Chen, Yangyang
Wang, Sarah Qian
Zhang, Kuo
Zhang, Wenrui
Keywords: Business::Finance
Issue Date: 2019
Source: Chang, X., Chen, Y., Wang, S. Q., Zhang, K., & Zhang, W. (2019). Credit default swaps and corporate innovation. Journal of Financial Economics, 134(2), 474-500. doi:10.1016/j.jfineco.2017.12.012
Journal: Journal of Financial Economics
Abstract: We show that credit default swap (CDS) trading on a firm's debt positively influences its technological innovation output measured by patents and patent citations. This positive effect is more pronounced in firms relying more on debt financing or being more subject to continuous monitoring by lenders prior to CDS trade initiation. Moreover, after CDS trade initiation, firms pursue more risky and original innovations and generate patents with higher economic value. Further analysis suggests that CDSs improve borrowing firms’ innovation output by enhancing lenders’ risk tolerance and borrowers’ risk- taking in the innovation process, rather than by increasing Research and Development (R&D) investment. Taken together, our findings reveal the real effects of CDSs on companies’ investments and technological progress.
ISSN: 0304-405X
DOI: 10.1016/j.jfineco.2017.12.012
Schools: Nanyang Business School 
Rights: © 2019 Elsevier B.V. All rights reserved. This paper was published in Journal of Financial Economics and is made available with permission of Elsevier B.V.
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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