The Initiation Of Credit Default Swaps Contracts And Financial Restatements

Credit Default Swaps market has been attracting more and more attention,both in academic and practical world.While most research focus on the Credit Default Swaps market,there are little study bases on the reasons to the initiation of Credit Default Swaps contracts.This paper focuses on the informativeness of accounting information and examine how the accounting information will affect the initiation of Credit Default Swaps contracts.By manually matching observations from the Credit Default Swaps Database with financial ratios database,I finally got 5365 observations.The empirical results show that the firm financial restatements announcements will increase the possibility of having Credit Default Swaps contracts trading on this firm.This association will be decrease when the restatements are related with changes of accounting rules and revenue improvements.Furthermore,I find that the co-occurrence of internal control weakness and financial restatements will decrease the likelihood of having Credit Default Swaps contracts trading on this firm.Finally,I also examine that how the institutional shares will affect the initiation of Credit Default Swaps contracts.The results suggest that as an effective monitor from the outsiders of the firm,institutional shares can decrease investors' concerns caused by financial restatements.This paper is the first one that discuss about how the accounting information will affect the initiation of Credit Default Swaps contracts.This paper sheds lights on the literature studying the Credit Default Swaps market.By setting up this new question,this paper avoids some key self-selection problems of current Credit Default Swaps-influence papers.This paper will also fill the blank of Credit Default Swaps contracts initiation determinants studies.This paper addresses the endogeneity problems caused by missing variables by using PSM.This paper also sheds some lights on the development of Chinese CDS market.First,this paper shows that the CDS market will be affected by information asymmetry and counterparty risk.While Chinese CDS market sees its development now,it is important to set up related laws and standards to standardize the Chinese CDS market.Further,the development of Chinese capital market should still be on the table.This will ensure the healthy development of the new market—the CDS market.