Corporate payout policy and credit risk: Evidence from credit default swap markets

Chengzhu Sun, Shujing Wang, Chu Zhang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

5 Citations (Scopus)


We examine whether and how payout policy affects credit risk using evidence from the credit default swap (CDS) market. CDS spreads increase substantially in response to announcements of dividend cuts, especially during recessions and among firms experiencing financial distress. CDS spreads also react more strongly to permanent and less anticipated dividend cuts. The size of the CDS reaction is more pronounced for financial firms, which are inherently more opaque. In contrast, CDS spreads react weakly to dividend raises and share repurchases. The results show that the information effect of dividend changes dominates the wealth-transfer effect.

Original languageEnglish
Pages (from-to)5755-5775
Number of pages21
JournalManagement Science
Issue number9
Publication statusPublished - Sept 2021


  • Credit default swaps
  • Dividend announcements
  • Financial firms
  • Industrial firms
  • Troubled Asset Relief Program

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research


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