Essays on risk assumption and liquidity management

Credit Default Swaps (CDS);Risk shifting;Lines of credit;Liquidity Management;Cash

Dos Santos Rocha, Marco Aurelio

关键词: Credit Default Swaps (CDS);    Risk shifting;    Lines of credit;    Liquidity Management;    Cash;   

Others  :  https://www.ideals.illinois.edu/bitstream/handle/2142/72744/Marco%20Aurelio_Dos%20Santos%20Rocha.pdf?sequence=1&isAllowed=y

美国|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

This dissertation contains two chapters: one on CDS and the firm’s behaviour towards risk assumption and the other one corporate liquidity management in emerging markets. The abstracts for each chapter are as follows.Chapter 1: Credit Default Swaps and Risk-Shifting: Good News for Constrained FirmsWe hypothesize that CDS discriminate risk choices according to firm’s financial status, being constrained firms more restrained than financially flexible ones. We take this prediction to the data using actual CDS trades around the financial crisis of 2007-2008, and a counter- factual CDS sample around the junk bond crisis of 1990. Taken together, estimates from theses two exercises suggest that CDS makes constrained firms more cautious in their in- vestment decisions when the economic environment is uncertain. Our result indicates that CDS could prevent firms from entering distressed renegotiations, reduce the incidence of the empty-creditor problem they give rise to and help stabilize the economy in downturns. Chapter 2: Liquidity Management Instruments in Emerging Markets: Evidence from Brazil We characterize the liquidity management of firms that operate in Brazil through the de- scription of both cash policies and the use of credit lines. We document an increase in cash ratios for firms of all sizes, which results in aggregate cash ratios doubling from 2002 to 2011. We find evidence that this secular increase is associated with the precautionary motive for holding cash and the low potential for credit lines to make up for cash. Domestic credit lines show interesting features that could help explain the side role they play in the liquidity management of Brazilian firms.