The Effect of Mandatory Risk Factor Disclosures on the Pricing of Credit Default Swaps

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review

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Original languageEnglish
Publication statusPublished - 29 Apr 2015

Conference

Title38th European Accounting Association Annual Congress 2015
PlaceUnited Kingdom
CityGlasgow
Period28 - 30 April 2015

Abstract

This study examines how risk factor disclosures (RFDs) mandated by the Securities and Exchange Commission (SEC) affect the pricing of credit default swaps (CDS). We find that CDS spreads decrease after RFDs are made available in corporate filings, implying that RFDs improve transparency of firms’ financial reporting and reduce information risk premium contained in CDS spreads. Additional analyses suggest that RFDs are especially helpful for investors to evaluate the underlying risks and future prospects of firms with greater information uncertainty and higher likelihood of default. Consistent with Duffie and Lando’s (2001) model, we also document that the slope and concavity of the CDS spread-maturity relation become steeper after firms provide RFDs. Overall, our findings imply that the SEC’s mandate for a “risk factor” section in periodic reports enhances the content of corporate filings and has a positive information effect on the credit market.

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Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).

Citation Format(s)

The Effect of Mandatory Risk Factor Disclosures on the Pricing of Credit Default Swaps. / TZU-TING, CHIU,; YUYAN, GUAN,; JEONG-BON, KIM,.

2015. Paper presented at 38th European Accounting Association Annual Congress 2015, Glasgow, United Kingdom.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review