Articlegreen2011

The Direct Relevance of Accounting Information for Credit Default Swap Pricing

34 citations0/0 files storedJournal of Business Finance &amp Accounting

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Credit Risk and Financial Regulations Auditing, Earnings Management, Governance Financial Distress and Bankruptcy Prediction

Abstract

Abstract: This paper examines the direct relevance of accounting information for credit default swap (CDS) pricing. Prior research on the impact of accounting information for CDS pricing has neglected to include either the output of theoretical CDS pricing models or credit ratings, both of which should impound credit relevant accounting information. Both in‐ and out‐of‐sample testing results suggest that accounting information's explanatory power for CDS prices is significantly diminished when this additional information is included in regression models. Empirical findings suggest a larger indirect role for accounting information in pricing CDS’, which play an important role in credit risk price discovery.

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References

1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 1974ON THE PRICING OF CORPORATE DEBT: THE RISK STRUCTURE OF INTEREST RATES*1996Multifactor Explanations of Asset Pricing Anomalies 1980Financial Ratios and the Probabilistic Prediction of Bankruptcy 1984Methodological Issues Related to the Estimation of Financial Distress Prediction Models 1974On the Pricing of Corporate Debt: The Risk Structure of Interest Rates 2001Forecasting Bankruptcy More Accurately: A Simple Hazard Model 1999Modeling Term Structures of Defaultable Bonds

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2014The market for credit default swaps: new insights into investors' use of accounting information?2016Determinants of bank CDS spreads in Europe 2019Resilience of United Kingdom financial institutions to major uncertainty: A network analysis related to the Credit Default Swaps market

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