The Product Market Effects of Derivatives Trading: Evidence from Credit Default Swaps
UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Discipline Group
Research Seminars in Finance
Topic: The Product Market Effects of Derivatives Trading: Evidence from Credit Default Swaps
Speaker: Dragon Tang, University of Hong Kong
Abstract: Creditors are less stringent on borrowers’ near-term profitability when they can buy credit protection from the market, freeing borrowers for more aggressive strategies in the product market. We find that, upon the inception of credit default swaps (CDS), the reference firms experience faster sales growth than their non-CDS industry rivals, resulting in larger market share for CDS referenced firms. This CDS effect on industry structure is more pronounced for less transparent sectors and financially more constrained sectors. CDS firms gain market share by cutting prices and increasing R&D. Our findings are consistent with the hypothesis that CDS attenuate the agency costs of debt associated with product market competition and suggest that derivatives trading can affect product market structure.
A light lunch will be provided at 1p.m. Please RSVP for catering purposes to Mala Kapahi by 12 noon on Monday, 18th September.
Date: Thursday, 21st September 2017
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
Building 8, Room 5.001
Dr Chau Chak Wing Building
Dr Chau Chak Wing Building
14 - 28 Ultimo Road, Ultimo
Co-ordinator: Adrian Lee (Ph: +61 2 9514 7765)
Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)
