The theoretical model of Duffie and Lando (2001) shows that change in accounting transparency affects the maturity structure of CDS instruments. In particular, an increase in transparency is associated with a decrease in the level of the spread and an increase in the slope and concavity of the (empirically relevant) maturity structure. This study uses the exogenous shift to International Financial Reporting Standards (IFRS) by European, Australian and Hong Kong firms in 2005 as a natural experimental setting to test the empirical implications of model. If the switch to IFRS increased accounting transparency as claimed by its proponents, then the maturity structure of firm-level CDS's should have changed in ways consistent with the implications of the model. Our results are broadly consistent with model predictions. Controlling for known determinants of CDS spreads such as ratings and liquidity, we find that CDS spreads are lower following the adoption of IFRS, and the slope and concavity of the CDS/maturity relation are higher. In contradistinction, these changes did not occur to the maturity structure of U.S. CDS instruments. Results are robust to matching IFRS and U.S. sample firms. We document that the impact of IFRS on maturity structure depends to some extent on institutional factors such as code versus common law, strength of rule of law and extent of country-level earnings management. Finally, the predicted change in maturity structure applies particularly to firms with high transparency and to firms that experience a positive change in transparency following the adoption of IFRS.
| Speaker: | Dr Jeffrey Callen Joseph L Rotman Professor of Accounting, University of Toronto (SMU, Cheng Tsang Man Chair Visiting Professor) |
| When: |
2.15 pm - 3.45 pm |
| Venue: | School of Accountancy [Map] Level 4, Meeting Room 4.1 |
| Contact: | Office of the Dean Email: SOAR@smu.edu.sg |