In this paper, we examine the effect of credit defaults swap (CDS) initiation on reference firms' cost management behavior. CDS contracts provide insurance protection for lenders, inducing a shift in bargaining power from borrowers to lenders and an excessive incidence of bankruptcy....

In this study, we examine the association between the initiation of credit default swaps (CDS) trading and firms' earnings management behavior. Since CDS contracts help creditors transfer credit risk, creditors tend to be tough in debt renegotiations. Anticipating tough creditors, CDS firms may...