{"title":"The real effect of CDS trading: Evidence from corporate employment","authors":"Shaojie Lai, Shiang Liu, Xiaoling Pu, Jianing Zhang","doi":"10.1111/irfi.12464","DOIUrl":null,"url":null,"abstract":"This paper examines whether the inception of credit default swaps (CDS) trading curbs corporate employment. We show that firms with CDS trading have significantly lower employment growth. Our baseline results are robust to alternative measures of corporate employment growth, various approaches that mitigate endogeneity concerns due to omitted variables and reverse causality, and additional control variables. The decrease in firms' employment growth after CDS trading is more pronounced in firms with larger financial constraints and lower CEO risk‐taking. In addition, we find that the inception of CDS trading affects employment growth through the financial distress channel. Further analysis finds that the inception of CDS trading could mitigate the labor over‐investment problem, stimulating employment efficiency. Our evidence suggests that corporate employment growth is reduced after the initiation of CDS trading due to the heightened cost of defaults.","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":"31 1","pages":""},"PeriodicalIF":1.8000,"publicationDate":"2024-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Finance","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1111/irfi.12464","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
This paper examines whether the inception of credit default swaps (CDS) trading curbs corporate employment. We show that firms with CDS trading have significantly lower employment growth. Our baseline results are robust to alternative measures of corporate employment growth, various approaches that mitigate endogeneity concerns due to omitted variables and reverse causality, and additional control variables. The decrease in firms' employment growth after CDS trading is more pronounced in firms with larger financial constraints and lower CEO risk‐taking. In addition, we find that the inception of CDS trading affects employment growth through the financial distress channel. Further analysis finds that the inception of CDS trading could mitigate the labor over‐investment problem, stimulating employment efficiency. Our evidence suggests that corporate employment growth is reduced after the initiation of CDS trading due to the heightened cost of defaults.
期刊介绍：
The International Review of Finance (IRF) publishes high-quality research on all aspects of financial economics, including traditional areas such as asset pricing, corporate finance, market microstructure, financial intermediation and regulation, financial econometrics, financial engineering and risk management, as well as new areas such as markets and institutions of emerging market economies, especially those in the Asia-Pacific region. In addition, the Letters Section in IRF is a premium outlet of letter-length research in all fields of finance. The length of the articles in the Letters Section is limited to a maximum of eight journal pages.
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