Political uncertainty and a firm’s credit risk: evidence from the international CDS market

Jinyu Liu, Rui Zhong

Research output: Contribution to journalArticlepeer-review

30 Citations (Scopus)

Abstract

Using a large sample of firms with single-name credit default swap (CDS) contracts in 30 countries, we document the evidence that political uncertainty, proxied by national election dummy, is positively related to firm-level credit risk. Specifically, this positive relation is more pronounced for the firms that have no political connection or poor international diversification, and in the countries with higher political uncertainty and lower investor protections. Further, by using a difference-in-differences approach, we find evidence to support idiosyncratic volatility and debt rollover channels through which political uncertainty affects the credit risk of individual firm.
Original languageEnglish
Pages (from-to)53-66
Number of pages14
JournalJournal of Financial Stability
Volume30
DOIs
Publication statusPublished - 1 Jun 2017
Externally publishedYes

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