演講者簡介 : Prof. Wong received his Ph.D. in Economics from Boston University in 2014. He is currently an Assistant Professor at the School of Finance, Shanghai University of Finance and Economics. His research interests are Microeconomic Theory, Information Economics, and Corporate Finance.
演講摘要 : We analyze the impact of credit default swaps (CDS) trading on firm investment and financing in a dynamic contingent claims model. CDS trading increases debt capacity and allows the firm to capture a larger tax shield by deterring strategic default. However, it accelerates bankruptcy and worsens debt overhang through the empty creditor channel. We measure the agency cost of CDS as the gain in firm value under the equity's commitment to a value-maximizing investment policy. For firms with grim growth prospects, high business risk, or more tangible assets, the agency cost can be substantial. Moreover, we argue that debt overhang decreases with creditors' bargaining power, renegotiation frictions, and the debt's commitment to the socially optimal credit insurance. The model implies that empirical tests of the real impact of CDS trading should account for the debt issuance or refinancing times.
