Benefits Of Using Cds Used For Hedging Purposes - 1501 Words

Banks are classified as users or non-users of CDS based on a search of their annual reports for information about the use of CDS. To search the reports, I have searched for key terms and expressions that indicate the use of CDS such as CDS, credit default swap, and credit default contract. Appendix (C) shows the complete list of the banks classified as CDS user or CDS non-user, and their market capitalization. The CDS users represent 50% of the sample and the other half are nonuser. The selected sample will be used to test two main aspects: 1) The effect of the CEOs’ risk-taking incentives on CDS use by distinguishing between CDS use for hedging purposes and CDS use for trading purposes; and 2) How the CDS use impacts the firms’ risk by†¦show more content†¦In 2002 the European Union agreed that from January 2005 international accounting standards/international financial reporting standards (IASs/IFRSs) would apply for the consolidated accounts of the EU listed companies (Barth, Landsman, and Lang, 2008). Starting from 2005, IAS/IFRS adoption has been mandatory in all the member states of the European Union with the ultimate goal of increasing transparency in financial reporting. This adoption of IAS/IFRS therefore represents an extraordinary event for empirical research because evidence shows that the mandatory adoption of IAS/IFRS in Europe results in better qualit y of financial reporting. In fact, empirical studies provide some support to the notion that adopting IAS/IFRS improves the quality of financial reporting and of public information (Palea, 2013). 3.1.4 Data sources In this thesis, secondary data is used to answer the two research questions. The data have been collected from two main sources: bank’s annual reports and Datastream. Following the approach of many prior empirical studies the data on CDS and derivative are hand-collected from banks’ annual reports (e.g., Allayannis and Ofek, 2001; Rajgopal and Shevlin, 2002; Supanvanij and Strauss, 2010). Unlike US firms, compensation data for European companies are not readily available in