Dark Knights: The Rise in Firm Intervention by Credit Default Swap Investors

• 成果类型: Article
• 署名作者: Danis, Andrea; Gamba, Andrea
• 署名单位: University System of Georgia; Georgia Institute of Technology; University of Warwick
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4717
• 发表日期: 2024
• 关键词: Credit default swaps; CDS; Empty creditor; bankruptcy; HEDGE FUND ACTIVISM

摘要

There have been several cases in recent years where credit default swap (CDS) buyers and sellers intervene in the restructuring of a distressed firm. We show theoretically that this can increase firm value. Intervention by CDS buyers solves the commitment problem between equity and debt holders but increases the probability of inefficient liquidation. Intervention by CDS sellers reduces the issue of excessive liquidation while keeping the benefits of CDS buyer intervention. Having both types of intervention decouples the commitment problem from the liquidation problem. Under certain assumptions, the so-called empty creditor problem can be solved, and firm value reaches first best.