CDS trading and nonrelationship lending dynamics

• 成果类型: Article
• 署名作者: Kang, Jung Koo; Williams, Christopher D.; Wittenberg-Moerman, Regina
• 署名单位: University of Southern California; University of Michigan System; University of Michigan
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-020-09562-9
• 发表日期: 2021
• 页码: 258-292
• 关键词: Credit default swaps; Accounting information; Financial distress; moral hazard; debt; equity; securitization; asymmetry; CONTRACTS; liquidity

摘要

We investigate how credit default swaps (CDSs) affect lenders' incentives to initiatenewlending relationships. We predict that CDSs reduce adverse selection that nonrelationship lead arrangers face when competing for loans. Consistently, we find that a loan is more likely to be syndicated by a nonrelationship lead arranger following CDS trading initiation on a borrower's debt. We also show that borrowers that obtain loans from nonrelationship lead arrangers in the post-CDS trading initiation period are more opaque, in line with the effect of CDSs being more pronounced for borrowers for which adverse selection costs are higher. Further analyses show that, relative to relationship lead arrangers, nonrelationship lead arrangers have lower monitoring incentives in the post-period, as reflected by less restrictive covenants and performance pricing provisions they impose and by the reduced loan shares they retain. Moreover, we find that borrowers of nonrelationship lead arrangers following CDS trading initiation have higher growth opportunities and more volatile operations, consistent with such borrowers benefiting more from weaker restrictions on their activities imposed by lenders. Lastly, lower monitoring incentives of CDS-protected nonrelationship lead arrangers also decrease the propensity of inexperienced participants to join their syndicates. Overall, our findings suggest that CDS trading significantly changes nonrelationship lending dynamics.