9-1 (A37)
Credit Default Swaps and Corporate Cash Holdings
Qian Wang
University of Warwick, United Kingdom
Marti
Subrahmanyam
New York University, USA
Dragon Yongjun
Tang
University of Hong Kong, Hong Kong
Considerable attention has been devoted into the real effects of derivatives,
particularly credit default swaps (CDS). In this paper we empirically estimate
the effect of CDS on corporate cash holdings. Using a comprehensive sample of
North American corporate CDS introductions between 1997 and 2009, we find that
corporate cash holdings increase after the inception of CDS trading. The impact
is significant after controlling for the endogeneity of CDS trading. Moreover,
cash-to-assets ratios for firms with larger CDS contracts outstanding, and those
with less access to financial market are more affected by CDS trading. The impact
of CDS is beyond the direct effect of line of credit on cash holdings.