How Does the Use of Credit Default Swaps Affect Firm Risk and Value? Evidence from US Life and Property/Casualty Insurance Companies

摘要

This study uses a unique credit default swap (CDS) transaction data set of insurers to examine the effects of CDS usage on the risk profile and firm value of US insurance companies for the period 2001-2009. Applying a Heckman two-stage model to adjust for the potential endogeneity of CDS usage with respect to firm risk and firm value, we find consistent evidence that the utilization of CDS for income generation purposes is associated with greater market risk, deterioration of financial performance, and lower firm value, for both Life and Property/Casualty insurers.