4.impact of Credit Default Swaps On Firms' Operational Efficiency

Impact of Credit Default Swaps on Firms’ Operational Efficiency
Forthcoming in Production and Operations Management
Liangfei Qiu
Warrington College of Business
University of Florida, Gainesville, Florida 32611
E-mail: liangfei.qiu@warrington.ufl.edu
Phone: 352-294-7183
Ruiqi Liu*
*Corresponding author
School of Accounting & Finance, PolyU Business School
The Hong Kong Polytechnic University, Hung Hom, Hong Kong 999077
Email: ruiqi.liu@connect.polyu.hk
Phone: 852-27667716
Yong Jin
Email: jimmy.jin@polyu.edu.hk
Phone: 852-27665612
Chao Ding
HKU Business School
The University of Hong Kong, Pokfulam, Hong Kong 999077
E-mail: chao.ding@hku.hk
Phone: 852-39171684
Yangyang Fan
Email: yangyang.fan@polyu.edu.hk
Phone: 852-27667072
Andy C. L. Yeung
Department of Logistics and Maritime Studies, PolyU Business School
Email: andy.yeung@polyu.edu.hk
Phone: 852-27664063
Electronic copy available at: https://ssrn.com/abstract=4127352

Abstract
As one of the most important financial innovations in the last two decades, credit default swap (CDS)
contracts have been initiated and actively traded in the market to hedge against credit risks. However, little
is known about how these financial innovations affect an underlying firm’s operations. In this empirical
study, we find that an underlying firm’s operational efficiency is significantly improved with the inception
of CDS trading. Our results are robust to multiple causal identification strategies. Further analysis suggests
that the inception of CDS tends to enhance the operational efficiency of a firm through the supply chain
financing capability and trade credit. We also postulate that CDS leads to enhanced efficiency through
institutional monitoring and improvements in management effectiveness. We then obtain suggestive
evidence. Our findings have direct implications concerning the ongoing policy debate surrounding CDS.
We contribute to operations management research by exploring how innovations in the financial market
would, in turn, affect the operational performance of firms.
Keywords: Financial Innovations; Credit Default Swaps; Operational Efficiency; Supply Chain Finance;
Institutional Monitoring
History: Received: August 2020; Accepted: May 2022 by Vijay Mookerjee after 2 revisions.

“I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the
economy.”
— Paul Volcker (2009), former Chair of the Federal Reserve
1. Introduction
As one of the most important financial innovations in the last two decades, credit default swap (CDS)
contracts have increasingly been initiated and actively traded in the market to hedge against credit risks.
The CDS market experienced explosive growth since 2000 and reached $62 trillion in notional value in
2007, and the most recent market size is approximately $15–20 trillion (Chang et al. 2019). A CDS is a
fixed-income derivative instrument: Buyers pay a periodic premium (i.e., CDS spread) to sellers in
exchange for compensation when credit events of underlying assets occur. Credit events can be failures to
pay interest or principal, bankruptcy, or even credit rating downgrades. For example, if an underlying
reference firm fails to meet its debt obligations, then, the CDS contract would help the buyer receive a
payoff from the seller, which usually equals the difference between the face value and the underlying
obligation value. If the underlying asset of the CDS contract is a firm’s debt, then, the CDS contract can
help lenders hedge the potential credit risk associated with the debt. As one of the most important fixed
income derivative securities in the market, CDSs are frequently viewed as “side bets” and initiated by the
financial institutions (Subrahmanyam et al. 2014)―the nature of “side bets” does not directly change the
fundamentals of the underlying firms and their operations, whereas the CDS trading may affect firms’
management including operations managers’ decision making and influence the markets’ views about the
underlying firms. Consequently, although the CDS contracts are mostly traded by the financial institutions,
the underlying reference firms’ daily operations may also be affected by the presence of these major
financial innovations in the financial market.
The debate on the role of CDS has been steadily growing, especially after the credit crisis of 2007–
2009. On the one hand, CDS spreads are believed to be accurate in measuring firms’ credit quality. On the
other hand, CDS contracts were central to the credit crisis of 2007–2009. CDS contracts can fundamentally
affect the behaviors of borrowers (the underlying reference firms) and lenders by changing their risk-
sharing mechanisms. Prior studies have focused on the financial implications of CDS, such as the impact
of CDS trading on banks’ incentives to engage in costly monitoring (Bolton and Oehmke 2011), the impact
of CDS on credit supply to underlying firms (Saretto and Tookes 2013), and the impact of CDS on corporate
bonds (Shim and Zhu 2014). However, the operational implications of CDS have not been well understood.
To the best of our knowledge, little is known about the impact of the inception of CDS on operational

efficiency as well as the channels through which CDS affects operational efficiency.1 In this empirical study,
we examine how a specific form of external financial innovations (e.g., CDS) contributes to operational
efficiency through supply chain finance and institutional monitoring.
To enrich our understanding of the relation between CDS and operational efficiency, we pose our
first research question: (1) What is the influence of financial innovations, such as the inception of CDS, on
operational efficiency? CDSs can serve as efficient monitoring tools, as firms’ credit quality can be
quantified by CDS spreads.2 In addition, CDS trading reduces asymmetric information such that supply
chain partners can more easily monitor underlying reference firms, thereby increasing their firms’
operational efficiency. CDS markets can provide outsiders with valuable information, such as the credit
risks of the underlying reference firms (Saretto and Tookes 2013). Specifically, supply chain partners can
more effectively monitor credit risk, which effectively increases the willingness of supply chain partners to
provide trade credit. Therefore, underlying reference firms can obtain higher trade credit through supply
chain finance and improve operational efficiency. Given that CDS trading can effectively reduce
information asymmetry, prior studies show that the inception of CDS allows firms to borrow more at longer
maturities and at lower interest rates (Augustin et al. 2014). Following this logic, we demonstrate in our
study that the inception of CDS can increase the operational efficiency of underlying reference firms.
An empirical challenge in answering the first research question is to establish the causal effect of
the inception of CDS, considering that CDS trading is endogenously determined. Factors that contribute to
a firm’s operational efficiency may also affect the likelihood of CDS inception. Without addressing this
selection issue, our estimation of the effect of CDS would be biased. In this study, we use several
identification strategies to validate the causal effect and provide the first empirically driven, comprehensive
understanding of CDS trading’s impact on underlying reference firms’ operational efficiency. Specifically,
we show that financial innovations (i.e., CDS trading) contribute positively to operational efficiency. Our
results are robust to different empirical measures of operational efficiency and different empirical strategies,
such as the Heckman-type models, propensity score matching (PSM), coarsened exact matching (CEM),
and instrumental variable approaches.
Prior studies have not directly addressed the channel through which CDS trading can affect
operational efficiency, thereby motivating us to pose the second research question: (2) How does the
inception of CDS affect operational efficiency through supply chain finance?
Bolton and Oehmke (2011) suggest that CDS trading can theoretically enhance firms’ debt
capacities; therefore, CDSs may promote corporate operational efficiency through a supply chain financing
1
Alan et al. (2014) find that operational efficiency can predict financial outcomes (e.g., future stock returns). Our
research focuses on the impact of financial innovations on operational efficiency.
2
Prior studies find that CDS can substitute for the role of credit ratings. For example, Chava et al. (2018) show that
CDS trading can decrease the sensitivity between a firm’s stock price and credit rating downgrades.

channel. Trade credit, one major short-term loan that exists in supply chain finance, allows customers to
delay the payment of an invoice to suppliers. Trade credit has been extensively used in supply chain daily
operations―by offering the trade credit, the suppliers can finance the customers at a lower cost (than the
financial institutions) and maintain the customer–supplier relationship; in addition, both sides can keep the
payment flexibility and thus reduce the excessive need to maintain precautionary balances. Trade credit
also mitigates information asymmetry (Smith 1987). However, the trade credit for one underlying firm is
not unlimited, which is bounded by its credit rating and the firm’s fundamentals. Given that CDS trading
can enhance firms’ debt capacities, including the trade credit, then firms can improve trade credit and
establish more efficient supply chains with financial innovations.
We contribute to the operations management (OM) research by exploring how innovations in the
financial market would, in turn, affect the operational performance of firms. Researchers have long been
interested in how external forces, such as those in the financial market, would have an impact on the internal
operations and capabilities, leading to heterogeneous levels of efficiency and competitive outcome
(Craighead et al. 2009; Hitt et al. 2016; Wu et al. 2019). Kumar et al. (2020) also request research
incorporating disruptive financial innovation and operations. In this research, we show that the inception
of CDS tends to enhance the operational efficiency of a firm through the supply chain financing capability
and trade credit. We also postulate that CDS leads to enhanced efficiency through institutional monitoring
and improvements in management effectiveness. We then obtain some support. Our research helps scholars
understand how competitive advantage can be generated as firms are positioned differently in the financial
market and how efficiency and competitiveness can be generated in a very different way. We show that the
efficiency and competitive advantage of firms are not only generated internally through better systems and
routines within the firm. Instead, we demonstrate them as potentially generated through external resources
and advantages, such as a different positioning through financial innovation. Our findings have important
practical implications. We also suggest that the firms’ management should also pay attention to and react
to financial markets and financial innovations even those not directly related to firms’ operations.
Additionally, the resources and advantages from external could be well integrated with firms’ operations.
We further establish firms’ additional efficiency and competitive advantage. The firms’ management may
also enhance the newly established competitive advantage in internal governance, deal negotiation (debt
dependency), supply chain management, risk management, and firms’ overall financial performance.
The remainder of the paper is organized as follows. Section 2 reviews the related literature. Section
3 provides a detailed description of our dataset and further introduces the key variable in our empirical
analysis. Section 4 details the discussion of our baseline empirical results and several additional tests. We
conclude this paper in Section 5.

2. Literature Review, Theory, and Research Hypotheses
Our literature review is based on two different strands: (i) CDSs and financial innovations in the finance
literature and (ii) operational efficiency in the OM literature. We highlight the contributions of this study
by contrasting our results with those in prior literature.
2.1. Credit Default Swaps

The initiation of CDS adds to the credit risk transfer channel for bank lenders and bondholders. Specifically,
by obtaining compensation from CDS sellers in a credit event, lenders somewhat transfer the borrowers’
credit risk to CDS sellers (Martin and Roycowdhury 2015), which changes the relationship between lenders
and borrowers. Morrison (2005) and Parlour and Winton (2013) model that CDS may lead to financial
disintermediation as well as reduced incentives of banks to monitor and intervene. In addition, the inception
of CDS should enhance lenders’ bargaining power in debt renegotiations and therefore relax borrowers’
debt contract constraints and increase borrowers’ debt capacity (Bolton and Oehmke 2011). Some empirical
evidence provides support for this theoretical analysis. For instance, Saretto and Tookes (2013) find that
CDS increases lenders’ willingness to lend, which increases firms’ leverage and debt maturity. Shan et al.
(2015) show evidence that CDS trading affects loan contracts by lowering the requirements on collateral
and borrowers’ minimum net value. Ivanov et al. (2016) show that for loans with interest rates tied to issuers’
CDS spreads, banks would set a lower interest rate and more simple covenants. Others have found that
these effects can only apply to certain borrowers. For example, Ashcraft and Santos (2009) find a higher
borrowing cost for high-risk borrowers but a lower borrowing cost for low-risk borrowers after the inception
of CDS trading. Moreover, Kim (2013) shows that after the initiation of CDS trading, corporate bond
spreads decrease more for firms with higher strategic default incentives. With the changes to lender–
borrower relations and firms’ debt capabilities as the CDS trading effects, firms’ operation outputs may
also be affected. Chang et al. (2019) reveal that CDS can enhance lenders’ risk tolerance and facilitate
borrowers’ risk-taking behavior and can therefore improve borrowing firms’ innovation quality. Figure 1
shows the entities that are involved in the CDS contracts and their relations.
Figure 1. Credit Default Swap (CDS) Contracts

2.2. Operational Efficiency
Prior studies indicate that a firm’s resources, routines, and capabilities are three major factors that explain
a firm’s relative performance concerning operational efficiency (Peng et al. 2008; Lam et al. 2016). Among
these factors, resources include tangible and intangible productive assets, routines refer to internal corporate
governance within an organization, and capabilities consist of information and knowledge exchange across
management and organizations (Kusunoki et al. 1998). Lam et al. (2016) find that firms’ social media
initiatives positively affect firms’ operational efficiency by facilitating information flow and knowledge
sharing within and across organizations (i.e., the routines and capacities channels). In turn, CDS trading
may affect the resources channel (Bolton and Oehmke 2011) and the capacities channel (Chang et al. 2019);
thus, the operational efficiency of underlying firms may be further influenced. More specifically, with the
inception of CDS for an underlying firm, the firm’s attractiveness, standing, and advantage in the external
financial market might, in turn, affect its internal resources, routines, and capabilities. From a resource-
based view (RBV) of the firm, the persistent internal and operational advantage might be derived from the
positional advantage in the capital market and shaped by external forces (see e.g., Parmigiani et al. 2011)
as a firm is differently positioned in the investment community due to CDS trading. Indeed, the literature
has documented that a firm’s position in the financial market and its relationship with other stakeholders,
including financial institutions and supply chain partners, might actually affect its policy, strategy,
management practice, and internal control (Johnson and Greening 1999; Parmigiani et al. 2011; Wu et al.
2019), leading to differentiating levels of operational efficiency and competitive advantage. We will
provide a more detailed explanation below and develop our hypotheses accordingly.
2.3. Theory and Research Hypotheses

We first explore the CDS’ overall impact on firms’ operational efficiency: on the one hand, the inception
of the CDS enhances the supply chain credibility and the resource-based advantage. Therefore, the presence
of CDS may further enhance operational efficiency. On the other hand, the inception of the CDS stimulates
improved stakeholder monitoring, governance, and control. On this channel, we conclude that the presence
of CDS may also improve operational efficiency. Hence we have the first hypothesis:
H1: The inception of CDS leads to the higher operational efficiency of the underlying firm in
general.
After examining the main hypothesis, we would like to exploit the possible channels and develop the
possible theory and corresponding hypotheses.

2.3.1. Supply Chain Credibility and Resource-based Advantage
Scholars in OM have long been interested in how heterogeneous resource advantages lead to fundamentally
and persistently different organizational routines, supply chain capabilities, and firm efficiency levels
(Craighead et al. 2009; Hitt et al. 2016; Wu et al. 2019; Kumar and Qiu 2022), resulting in different
resource-generating abilities and competitive positions. The RBV of the firm suggests that the competitive
advantage of a firm is not generated directly by possessing resources but by how firms leverage these
resources to derive stronger positional advantages and competitive outcomes (Hitt et al. 2016; Song et al.
2011). Superior resources and positional advantages enable firms to be both more productive and effective
than their rivals in a competitive marketplace (Song et al. 2011). We argue that the inception of CDS for a
reference firm enables the underlying firm to gain a certain positional advantage in the financial market and
the supply chain over their rivals in the same industry, leading to higher operational efficiency.
First, the inception of CDS empowers firms with higher visibility and information transparency.
Information sharing across supply chains and partner firms could help make better operational decisions
and increase efficiency (Kumar et al. 2018b). Before the inception of CDS, operational and financial
information about the underlying firm is likely limited to the banks and other financial institutions that
make direct transactions with the underlying firm at a specific time. With CDS trading, the operational and
financial positions of the underlying firms become a widespread and persistent concern in the investment
community. For example, with the initiation of CDS trading, the market as a whole, including the CDS
issuers, the traders, the credit rating agencies, and others, would be increasingly interested in the underlying
operating performance and financial position of the firm. As a result of CDS trading, the market
attentiveness and information transparency of the underlying firm are enhanced. Consequently,
organizational visibility, creditability, and firm’s legitimacy in the market due to CDS trading become an
important positional advantage, leading to a higher reputation and standing of the underlying firm among
supply chain partners and the business community (Burkart and Ellingsen 2004; Ng et al. 1999). This
situation enables the underlying firm to improve its supply chain financing capability and resources,
particularly through trade credit. From an RBV, such an external positional advantage and supply chain
financing capability enable the firm to gain a higher level of operational efficiency (Hitt et al. 2016; Wuttke
et al. 2019).
H2a: The inception of CDS leads to the higher operational efficiency of the underlying firm
mediating through supply chain financing resources such as trade credit.
2.3.2. Stakeholder Monitoring, Governance, and Control

Stakeholder theory (Freeman 1999) provides another useful framework to explain another possible path
that CDS might lead to the higher operational efficiency of the underlying firm. According to the
instrumental perspective of stakeholder theory, systematic attention of a firm to stakeholder interests is
critical for the operational and economic benefits of the focal firm (Berman et al. 1999). Stakeholders are
defined as any group or individual, such as shareholders, creditors, customers, and suppliers, who are likely
to affect or to be affected by the operations of an organization (Berman et al. 1999; Barth et al. 2013). As
stakeholders might be influenced by the operations and achievements of the firm’s objectives, they are
naturally interested and concerned about the activities and decisions of the focal firm (Harrison and Wicks
2013).
With the inception of CDS, the operations, activities, and decisions of the underlying firm tend to
be an increasing concern of many stakeholders, including CDS issuers, CDS traders, credit rating agencies,
and others. Such an increased concern of stakeholders may lead to improved corporate governance and
internal control of the underlying firms. For example, with increased attentiveness, monitoring, and pressure
from stakeholders (e.g., CDS issuers and holders), any customer complaint or negative corporate incident
of the focal firm is likely to draw extra attention from the business community and is thus a heightened
concern of the management of the firm. Previous research has shown that institutional investors have a
strong interest not only in the financial performance of their investment firms but also in the firms’ activities,
operations, and strategies (Johnson and Greening 1999; Barth et al. 2013). The interests of stakeholders in
the investment community are linked to their increased involvement in the governance and management of
the underlying firm (Johnson and Greening 1999).
From the perspective of stakeholder theory, systematic attention to the stakeholders by the focal
firm or an instrumental posture of the firm toward stakeholders is an important step for firms to maintain
their legitimacy and efficiency, reducing transaction costs and maximizing their own economic benefits
(Berman et al. 1999; Johnson and Greening 1999; Jacobs et al. 2016). Consequently, the focal firm is willing
to “cooperate” with other stakeholders to improve corporate governance, management practice, and internal
control systems, leading to higher operational efficiency (Barth et al. 2013; Johnson and Greening 1999;
Parmigiana et al. 2011). We thus develop our third hypothesis that CDS trading leads to higher operational
efficiency through enhanced corporate monitoring, governance, and control by stakeholders (H2b). Figure
2 shows the theoretical framework of the current research.
H2b: The inception of CDS leads to the higher operational efficiency of the underlying firm
mediating through corporate monitoring, governance, and control.

Inception of CDS of a reference firm
(i.e., the firm under investigation)
Supply Chain Credibility and Resource-based Advantage
Stakeholder Monitoring, Governance and Controls

Increased information transparency Institutional monitoring from various
of the reference firm stakeholders (e.g., CDS issuers, CDS
holders, credit rating agencies)
Enhanced visibility, credibility, and Strengthened corporate

legitimacy of the reference firm management and governance
Gains in supply chain financing Enhanced management

capability and resources effectiveness and internal control
Higher operational efficiency
Figure 2. Theoretical Framework
3. Data and Measures
3.1. Data
We collect firms’ characteristic data and CDS trading data from several sources; these data reflect the period
1997–2014. First, we obtain the firm-level accounting data from the Compustat database. Next, we obtain
the CDS data from “GFI Group,” a leading CDS market interdealer broker, and these data cover the North
American single-name CDS trading information from 1997–2009. To obtain our final sample, we merged
the aforementioned data and dropped observations from financial and utility industries as well as
observations with missing control variables. Table 1 summarizes the sample selection process. In sum, our
final sample includes a total of 20,289 firm-year observations, representing 3,442 unique firms, 265 of
which are CDS active firms initiated in the period 1997–2008.
Table 1. Sample Selection Process

Sample Selection

Number of CDS initiation firms from 1997 to 2009 reported by “GFI Group” 796
Merging CDS data & Accounting data:
Number of firm-year observations with two-year consecutive operational efficiency 119,245
data from 1997 to 2014
Less: Number of firm-year observations for firms in financial and utility industries (24,738)
Less: Number of firm-year observations with missing control variables (74,218)
(531 CDS firms are not matched)
Final Sample (Number of firm-year observations from 1997 to 2014) 20,289
Observations for 265 firms with CDS from 1997 to 2014 2,749
Observations for firms without CDS from 1997 to 2014 17,540
Table 2. Sample Distribution (Sample: 1997–2014 without financial & utility industry)
Panel A CDS firms distribution by initiation year

Ratio of total
CDS Initial Year N Aggregate ratio
CDS firms
1997 16 6.04% 6.04%
1998 26 9.81% 15.85%
1999 13 4.91% 20.75%
2000 37 13.96% 34.72%
2001 45 16.98% 51.70%
2002 60 22.64% 74.34%
2003 23 8.68% 83.02%
2004 15 5.66% 88.68%
2005 14 5.28% 93.96%
2006 12 4.53% 98.49%
2007 2 0.75% 99.25%
2008 2 0.75% 100.00%
Total 265 100.00% 100.00%
Panel B Sample distribution by year

Fiscal Year Total firms CDS active firms CDS firms ratio
1997 833 11 1.32%
1998 883 23 2.60%
1999 967 29 3.00%
2000 1,059 54 5.10%
2001 1,221 89 7.29%
2002 1,260 133 10.60%
2003 1,350 158 11.70%
2004 1,350 169 12.50%
2005 1,311 168 12.80%
2006 1,256 165 13.10%
2007 1,207 162 13.40%
2008 1,230 170 13.80%
2009 1,197 160 13.40%
2010 1,123 154 13.70%
2011 1,057 156 14.80%
2012 1,018 147 14.40%
2013 986 144 14.60%
2014 981 140 14.30%
Total 20,289 2,232 11.00%
10

In Panel A of Table 2, we report the CDS firms that we include in our final sample by initiation
year. We use the first CDS trading date as the CDS initiation date. If the underlying firm’s fiscal year-end
date is after the CDS initiation date, then, the fiscal year is regarded as a CDS active year. Accordingly, we
treat the first CDS active year of the stock as the initiation year. The number of CDS introduced firms in
each year ranges from 2 firms in 2007 and 2008 to 60 firms in 2002. In Panel B of Table 2, we report the
year-by-year sample coverage, which includes the total firms and CDS active firms each year. The number
of firms with CDSs in our sample ranges between 11 and 170,3 with an average CDS firm ratio between
1.32% and 14.80%. We report the industry distribution (2-digit SIC codes) of CDS firms and the final
sample in the Online Appendix (Table OA2).
3.2 Variables
Our key variables are CDS trading and operational efficiency. CDSit is a dummy variable that represents
whether CDS is available to firm i at time t. If the firm is in and after the inception of CDS trading, then, it
equals 1; otherwise, 0. To measure operational efficiency, we followed the Stochastic Frontier Estimation
(SFE) methodology (Battese and Coelli 1988; Dutta et al. 2005; Lam et al. 2016; Li et al. 2010; Yiu et al.
2020). As for the SFE model itself, the number of employees, the cost of goods sold, and capital expenditure
are all operational resources; operating income is operational output 4 . We first developed a stochastic
production function model to model the relation between the resources and output of the firms as follows:
𝑙𝑛 (𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒)𝑖𝑗𝑡 = 𝑏0 + 𝑏1 𝑙𝑛(𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠)𝑖𝑗𝑡 +

𝑏2 𝑙𝑛(𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑)𝑖𝑗𝑡 + 𝑏3 𝑙𝑛(𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒)𝑖𝑗𝑡 + 𝑣𝑖𝑗𝑡 − ℎ𝑖𝑗𝑡 . (1)
where 𝑣𝑖𝑗𝑡 is the random error based on stochastic modeling, and ℎ𝑖𝑗𝑡 represents the loss of efficiency by
firm 𝑖 relative to industry 𝑗 in year t (estimates based on 2-digit SIC codes). When estimating the loss of
efficiency, we first follow Battese and Coelli (1988) and adopt a methodology on the basis of the panel data
structure model. The loss of efficiency (ℎ𝑖𝑗𝑡 ) has a half-normal distribution. To increase the robustness, we
follow Jondrow et al. (1982) to obtain our second measure by estimating the loss of efficiency on the basis
of the cross-sectional model in which ℎ𝑖𝑗𝑡 has a half-normal distribution. ℎ𝑖𝑗𝑡 ranges from 0 to 1, and a high
value indicates a high loss in efficiency (i.e., low operational efficiency). Accordingly, we measured the
operational efficiency of a firm relative to its industry by revising the value of ℎ𝑖𝑗𝑡 :
3
The number of CDS initiation firms and CDS active firms are different (e.g., 16 firms were initiated CDS trading in
1997 while 11 CDS active firms exist in 1997) because not every firm has corresponding accounting data in every
year in our sample period (e.g., some firms have no corresponding accounting data in their first CDS trading year).
4
Further information about the SFE model is provided in Online Appendix (OA-1).
11

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦𝑖𝑗𝑡 = 1 − ℎ𝑖𝑗𝑡. (2)
Correspondingly, we have two operational efficiency measures: OPERATIONAL EFFICIENCY 1i,t

following Battese and Coelli (1988) and OPERATIONAL EFFICIENCY 2i,t following Jondrow et al. (1982).
Following prior studies on operational efficiency (Wu et al. 2010; Bellamy et al. 2014; Kortmann
et al. 2014; Lam et al. 2016), we include firm size (FIRM SIZE, which represents the natural logarithm of
a firm’s total assets), firm profitability (FIRM PROFITABILITY, which represents a firm’s return on assets),
firm leverage (FIRM LEVERAGE, which represents the firm’s total liability divided by total assets), firm
age (FIRM AGE, which represents the natural logarithm of the number of years since a firm’s IPO5), firm
advertising expense (FIRM ADVERTISING EXPENSE, which represents a firm’s advertising expenses
divided by sales), market-to-book ratio (MARKET-TO-BOOK, which is a firm's market value divided by its
book value), cash holdings (CASH, measured as a firm’s cash divided by total assets), retained earnings
(RETAINED EARNINGS, which is a firm’s retained earnings divided by total assets), tangible assets
(PPENT, measured as a firm’s property, plant, and equipment divided by total assets), working capital
(WORKING CAPITAL, which equals a firm’s working capital divided by total assets), and institutional
governance (INSTITUTIONAL OWNERSHIP DUMMY, a dummy variable that equals 1 if a firm has an
institutional stockholder; otherwise, 0) as controls. Additionally, we control credit rating (CREDIT RATING
DUMMY, a dummy variable that equals 1 if a firm has a Standard & Poor’s debt rating; otherwise, 0) and
investment grades (INVESTMENT GRADE DUMMY, dummies assigned to each investment grade level) to
capture firms’ credit risk.
Table 3 presents the summary statistics for our final sample.6 We winsorize all variables at the 1%
and 99% levels. On average, 11% of our firm-year observations are CDS active firm-years. In terms of the
mediating variables, the average (median) accounts payable of firms is 18.6% (11.8%) of their cost of goods
sold. On average, institutional investors hold 33.9% of firms’ shares, and the median ratio is 19.1%. As for
the firm’s characteristics, the mean (median) value of firm size in terms of total assets is 5.606 (5.577) in
natural logarithm, which is 272.05 million (264.28 million) in actual value. Furthermore, the average
(median) profitability in terms of ROA is -9.7% (3%), the average (median) firm age since IPO is 2.605
(2.639) in natural logarithm, which is 13.53 years (14.00 years) in actual value, and the average (median)
firm advertising expense is 3.5% (1.4%) of firm’s sales. The mean (median) value of the firm’s market-to-
book ratio is 2.871 (1.927). About 26.8% of our final observations have a Standard & Poor’s rating for their
debt. On average, the firm’s cash holding accounted for 19.8% of its total assets, retained earnings
accounted for -130.9%, and working capital accounted for 21.2%. 22.9% of total assets are tangible assets.
5
For firms without IPO date, we use the date they first appeared in CRSP as the IPO date.
6
The definitions of variable are shown in the Online Appendix (Table OA1).
12

67.2% of our final observations have institutional stockholders. Correlations among all the variables are
shown in the Online Appendix (Table OA3).
Table 3. Summary Statistics
Variable N Mean SD p50 p25 p75 Min Max

𝐶𝐷𝑆𝑖𝑡 20,289 0.110 0.313 0 0 0 0 1
OPERATIONAL EFFICIENCY 1i,t 20,289 0.520 0.263 0.523 0.338 0.682 0.008 1.000
OPERATIONAL EFFICIENCY 2i,t 20,289 0.496 0.267 0.487 0.305 0.658 0.007 1.000
FIRM SIZEi,t 20,289 5.606 2.422 5.577 3.812 7.285 0.542 11.380
FIRM PROFITABILITYi,t 20,289 -0.097 0.485 0.030 -0.063 0.080 -3.376 0.334
FIRM LEVERAGEi,t 20,289 0.568 0.512 0.482 0.302 0.674 0.066 4.131
FIRM AGEi,t 20,289 2.605 0.825 2.639 2.079 3.178 0.693 4.394
FIRM ADVERTISING EXPENSEi,t 20,289 0.035 0.058 0.014 0.005 0.038 0.000 0.384
MARKET-TO-BOOKi,t 20,289 2.871 6.076 1.927 1.003 3.608 -21.520 37.020
CREDIT RATING DUMMYi,t 20,289 0.268 0.443 0 0 1 0 1
CASHi,t 20,289 0.198 0.200 0.127 0.040 0.295 0.000 0.824
RETAINED EARNINGSi,t 20,289 -1.309 5.231 0.066 -0.565 0.343 -39.050 0.976
PPENTi,t 20,289 0.229 0.202 0.165 0.073 0.322 0.005 0.839
WOKRING CAPITALi,t 20,289 0.212 0.381 0.233 0.058 0.426 -2.110 0.829
INSTITUTIONAL OWNERSHIP
20,289 0.672 0.470 1 0 1 0 1
DUMMYi,t
TRADE CREDITi,t 20,289 0.186 0.279 0.118 0.071 0.188 0.009 2.170
INSTITUTIONAL OWNERSHIPi,t 20,289 0.339 0.359 0.191 0 0.688 0 1
4. Empirical Results
4.1. Baseline Analysis

In this section, we examine the impact of financial innovation (i.e., the availability of CDS trades to lenders)
on a focal firm’s operational efficiency. We estimate the following regression model:
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦𝑖,𝑡+1 = 𝑎0 + 𝛽1 𝐶𝐷𝑆𝑖𝑡 + 𝑎1 𝐹𝑖𝑟𝑚 𝑆𝑖𝑧𝑒𝑖𝑡 + 𝑎2 𝐹𝑖𝑟𝑚 𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑙𝑖𝑡𝑦𝑖𝑡 +

𝑎3 𝐹𝑖𝑟𝑚 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒𝑖𝑡 + 𝑎4 𝐹𝑖𝑟𝑚 𝐴𝑔𝑒𝑖𝑡 + 𝑎5 𝐹𝑖𝑟𝑚 𝐴𝑑𝑣𝑒𝑟𝑡𝑖𝑠𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑖𝑡 + 𝛼6 𝑀𝑎𝑟𝑘𝑒𝑡 − 𝑡𝑜 −
𝐵𝑜𝑜𝑘𝑖,𝑡 + 𝛼7 𝐶𝑟𝑒𝑑𝑖𝑡 𝑅𝑎𝑡𝑖𝑛𝑔 𝐷𝑢𝑚𝑚𝑦𝑖,𝑡 + 𝛼8 𝐶𝑎𝑠ℎ𝑖,𝑡 + 𝛼9 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑖,𝑡 + 𝛼10 𝑃𝑃𝐸𝑁𝑇𝑖,𝑡 +
𝛼11 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖,𝑡 + 𝛼12 𝐼𝑛𝑠𝑡𝑖𝑡𝑢𝑡𝑖𝑜𝑛𝑎𝑙 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝐷𝑢𝑚𝑚𝑦𝑖,𝑡 +
𝐶𝑜𝑛𝑡𝑟𝑜𝑙 (𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝐺𝑟𝑎𝑑𝑒, 𝐹𝑖𝑟𝑚, 𝑌𝑒𝑎𝑟) + 𝜀𝑖𝑡 . (3)
Our dependent variable is 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦𝑖,𝑡+1, which is operational efficiency for firm
i in year t + 1. Considering that it takes time for supply chain partners, the business community, and other
stakeholders to pay attention to the CDS initiation firms and then take effect on firms’ operational efficiency
by providing additional financing and monitoring, our dependent variable is lagged in one year.7 Our main
7
We also conduct additional tests to provide supports for the lagged effects in Section 4.5.1.
13

independent variable is 𝐶𝐷𝑆𝑖𝑡 , which is a dummy variable indicating whether the CDS is available for firm
i at time t. Given that large firms are generally more efficient due to their economies of scale, we include
firm size as a control and operationalize it by taking the natural logarithm of firm total assets (Bardhan et
al. 2013; Hendricks et al. 2009). Considering that it is highly related to operational efficiency, we use firm
profitability as a control and operationalize it as a firm’s net income scaled by total assets (Chizema et al.
2015; Mukherji et al. 2011). We also control for firm leverage as a firm’s total liability divided by total
assets, control firm age as the natural logarithm of years since a firm was listed publicly (Carter and Lynch
2001; Wang et al. 2008), control for firm advertising expense by scaling a firm’s spending on advertising
by firm sales (Lou 2014; Pirinsky and Wang 2006), and control for firm’s market-to-book ratio by dividing
a firm's market value by its book value. Then we use the firm’s cash holding, retained earnings, tangible
assets, and working capital to control for the firm’s operational resources. Besides, we add an institutional
ownership dummy to control for firm’s institutional governance. Additionally, we control for the firm’s
credit rating, which is a dummy variable that equals 1 if a firm has a Standard & Poor’s debt rating, and
investment grades to capture firms’ credit risk. To control for unobservable time and firm-specific effects,
we also add the year- and firm-fixed effects in our regression.
We present our baseline estimation results in Table 4. To address the issue that the model may fail
to meet standard regression assumptions (e.g., clustering, heteroscedasticity), we report the robust t and
bootstrap z statistics, and all the standard errors are clustered at the firm level. In columns 3 (robust t
statistics) and 5 (bootstrap z statistics), we find that the coefficients on CDS are significantly positive,
suggesting that the introduction of CDS can increase a focal firm’s operational efficiency, which is
consistent with our Hypothesis 1. Our results are robust to our other operational efficiency measures.
Economically, the introduction of CDS could help firms increase their operational efficiency by 7.31%
(7.66%) on average, measured by 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 1 (𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 2).8
8
The percentage is calculated by dividing the CDS’s coefficients by the mean of Operational Efficiency. For
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 1, 0.038/0.520=7.31%, and for 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 2, 0.038/0.496=7.66%.
14

Table 4. Baseline Analysis: The Impact of the availability of CDS on Operational Efficiency
(1) (2) (3) (4) (5) (6)
OPERATIONAL OPERATIONAL OPERATIONAL OPERATIONAL OPERATIONAL OPERATIONAL
EFFICIENCY 1i,t+1 EFFICIENCY 2i,t+1 EFFICIENCY 1i,t+1 EFFICIENCY 2i,t+1 EFFICIENCY 1i,t+1 EFFICIENCY 2i,t+1
𝑪𝑫𝑺𝒊𝒕 0.034** 0.034** 0.038** 0.038** 0.038** 0.038**

(2.053) (2.003) (2.241) (2.195) (2.282) (2.234)
FIRM SIZEi,t 0.001 0.001 0.001 0.001
(0.210) (0.184) (0.228) (0.255)
FIRM PROFITABILITYi,t -0.004 -0.004 -0.004 -0.004
(-0.615) (-0.621) (-0.590) (-0.589)
FIRM LEVERAGEi,t -0.006 -0.006 -0.006 -0.006
(-0.638) (-0.598) (-0.480) (-0.568)
FIRM AGEi,t 0.009 0.009 0.009 0.009
(0.739) (0.722) (0.723) (0.855)
FIRM ADVERTISING -0.028 -0.023 -0.028 -0.023
EXPENSEi,t (-0.454) (-0.371) (-0.383) (-0.318)
MARKET-TO-BOOKi,t -0.000 -0.000 -0.000 -0.000
(-0.996) (-0.950) (-1.025) (-1.176)
CREDIT RATING DUMMYi,t -0.044 -0.044 -0.044 -0.044
(-0.617) (-0.573) (-0.517) (-0.606)
CASHi,t 0.002 0.004 0.002 0.004
(0.073) (0.153) (0.075) (0.140)
RETAINED EARNINGSi,t -0.001 -0.001 -0.001 -0.001
(-0.806) (-0.740) (-0.746) (-0.684)
PPENTi,t -0.007 -0.005 -0.007 -0.005
(-0.193) (-0.140) (-0.188) (-0.171)
WOKRING CAPITALi,t 0.001 0.001 0.001 0.001
(0.037) (0.048) (0.030) (0.050)
INSTITUTIONAL -0.011 -0.011 -0.011 -0.011
OWNERSHIP DUMMYi,t (-1.163) (-1.099) (-1.273) (-1.280)
INVESTMENT GRADE
Yes Yes Yes Yes
DUMMIESi,t
Constant 0.531*** 0.506*** 0.594*** 0.568*** 0.594*** 0.568***
(56.121) (52.669) (5.522) (5.160) (4.419) (6.631)
Year Fixed Effect Yes Yes Yes Yes Yes Yes
Firm Fixed Effect Yes Yes Yes Yes Yes Yes
Observations 20,289 20,289 20,289 20,289 20,289 20,289
R2 0.002 0.002 0.004 0.004 0.004 0.004
Notes. Robust t statistics in parentheses in columns (1)–(4) and bootstrap z statistics in parentheses in columns (5)–(6). All standard errors are clustered at firm
level. R2 is based on fixed-effects (within) regression.* p < 0.1, ** p < 0.05, *** p < 0.01.
15

4.2. Endogeneity Concerns of the Availability of CDS
As we discussed earlier, the availability of CDS could be endogenously determined. In turn, firms with
higher operational efficiency may perform better and experience higher growth opportunities; thus, such
firms are more likely to have CDS based on their credit events. We employ various identification strategies
to address this concern: (i) a Heckman-type model, (ii) a regression based on the matched sample, and (iii)
a two-stage regression with an instrumental variable.
4.2.1. Heckman-Type Model

Firms are not randomly selected into the CDS trading market, thereby raising one endogeneity issue on
sample selection bias. Knowing the underlying selection process regarding CDS availability, we can use
the Heckman-type model to alleviate the concern about sample selection bias (Kumar et al. 2018a). First,
we model the possibility of CDS trading for a firm using the selection equation. Then, we estimate equation
(3) by controlling the CDS trading probability. The selection equation is given as follows:
Probit(CDS𝑖,𝑡 = 1) = 𝛼0 + 𝛼1 𝐿𝑒𝑛𝑑𝑒𝑟 𝑇𝑖𝑒𝑟 1 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖,𝑡 + 𝛼2 𝐹𝑖𝑟𝑚 𝑆𝑖𝑧𝑒𝑖,𝑡−1 +

𝛼3 𝐹𝑖𝑟𝑚 𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑙𝑖𝑡𝑦𝑖,𝑡−1 + 𝛼4 𝐹𝑖𝑟𝑚 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒𝑖,𝑡−1 + 𝛼5 𝐹𝑖𝑟𝑚 𝐴𝑔𝑒𝑖,𝑡−1 +
𝛼6 𝐹𝑖𝑟𝑚 𝐴𝑑𝑣𝑒𝑟𝑡𝑖𝑠𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑖,𝑡−1 + 𝛼7 𝑀𝑎𝑟𝑘𝑒𝑡 − 𝑡𝑜 − 𝐵𝑜𝑜𝑘𝑖,𝑡−1 + 𝛼8 𝐶𝑟𝑒𝑑𝑖𝑡 𝑅𝑎𝑡𝑖𝑛𝑔 𝐷𝑢𝑚𝑚𝑦𝑖,𝑡−1 +
𝛼9 𝐶𝑎𝑠ℎ𝑖,𝑡−1 + 𝛼10 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑖,𝑡−1 + 𝛼11 𝑃𝑃𝐸𝑁𝑇𝑖,𝑡−1 + 𝛼12 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖,𝑡−1 +
𝛼13 𝐼𝑛𝑠𝑡𝑖𝑡𝑢𝑡𝑖𝑜𝑛𝑎𝑙 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝐷𝑢𝑚𝑚𝑦𝑖,𝑡−1 + 𝐶𝑜𝑛𝑡𝑟𝑜𝑙 (𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝐺𝑟𝑎𝑑𝑒, 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦, 𝑌𝑒𝑎𝑟). (4)
where 𝐿𝑒𝑛𝑑𝑒𝑟 𝑇𝑖𝑒𝑟 1 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 is the average of the Tier 1 capital level across the banks that have served
as lenders or bond underwriters for firm i over the previous five years. We identify the lenders and bond
underwriters for firms on the basis of DealScan data and FISD data. Then we obtain Tier 1 Capital
information of these lenders and bond underwriters from the Bank Regulatory Database and Compustat
Bank file. As we mentioned earlier, the lenders (e.g., banks) buy CDS from CDS sellers (e.g., insurance
companies, hedge funds) to hedge against the credit risk of underlying assets. Usually, the lenders initiate
CDS trading on the firm’s debt, and Tier 1 capital level could explain the hedging needs of banks. Tier 1
capital is an important measure to reflect a bank’s financial strength. A bank in a good financial situation
(with a high Tier 1 capital level) would have low needs to hedge against credit risk. Thus, a firm with a
higher Lender Tier 1 Capital will have a lower probability to have CDS trading on its debt. At the same
time, Tier 1 capital is a measure to reflect lenders’ or bond underwriters’ financial strength rather than firms’
financial strength, and it should not directly affect firms’ operational efficiency or through other channels
to affect firms’ operational efficiency. Therefore, Lender Tier 1 Capital is likely to meet the exclusion
requirement, and we use it as the exogenous variable in the selection model (Subrahmanyam et al. 2014).
When estimating the selection model, we use data from 1997 to the first year of CDS trading for
16

CDS active firms and all observations in our sample for non-CDS firms. Industry (2-digit SIC codes) and
year-fixed effects are controlled. Results of the selection model are shown in the Online Appendix (Table
OA4). After obtaining the inverse mills ratio (IMR) based on the selection model, we add the IMR in the
baseline regression model (equation 3) and re-estimate the effect of CDS on the focal firm’s operational
efficiency after correcting the sample selection issue.
We present the estimation results of the Heckman correction (second-stage) in Table 5. These
results show that the coefficients of CDS are all significantly positive. And after addressing the sample
selection bias issue, the increased level of operational efficiency due to the inception of CDS enlarges,
which is 13.07% (14.31%) on average based on Operational Efficiency 1 (Operational Efficiency 2).
Table 5. Results of Heckman Correction

(1) (2) (3) (4)
OPERATIONAL OPERATIONAL OPERATIONAL OPERATIONAL
EFFICIENCY 1i,t+1 EFFICIENCY 2i,t+1 EFFICIENCY 1i,t+1 EFFICIENCY 2i,t+1
𝑪𝑫𝑺𝒊,𝒕 0.068** 0.071** 0.068** 0.071**

(2.045) (2.080) (2.061) (2.140)
IMR -0.013 -0.014 -0.013 -0.014
(-0.611) (-0.665) (-0.586) (-0.698)
FIRM SIZEi,t -0.015 -0.015 -0.015 -0.015
(-1.394) (-1.389) (-1.442) (-1.318)
FIRM -0.018* -0.018* -0.018* -0.018*
PROFITABILITYi,t (-1.900) (-1.880) (-1.780) (-1.710)
FIRM 0.002 0.002 0.002 0.002
LEVERAGEi,t (0.593) (0.627) (0.137) (0.171)
FIRM AGEi,t 0.017 0.017 0.017 0.017
(0.857) (0.836) (0.776) (0.738)
FIRM 0.005 0.033 0.005 0.033
ADVERTISING (0.032) (0.182) (0.027) (0.192)
EXPENSEi,t
MARKET-TO- -0.000 -0.000 -0.000 -0.000
BOOKi,t (-0.965) (-0.799) (-0.553) (-0.495)
CREDIT RATING -0.087 -0.091 -0.087 -0.091
DUMMYi,t (-1.164) (-1.130) (-1.022) (-0.889)
CASHi,t -0.003 -0.001 -0.003 -0.001
(-0.060) (-0.027) (-0.057) (-0.022)
RETAINED 0.004* 0.004* 0.004* 0.004
EARNINGSi,t (1.902) (1.872) (1.852) (1.351)
PPENTi,t -0.121** -0.119* -0.121** -0.119**
(-1.977) (-1.896) (-1.962) (-2.464)
WOKRING -0.017 -0.017 -0.017 -0.017
CAPITALi,t (-1.021) (-0.980) (-0.820) (-0.996)
INSTITUTIONAL -0.017 -0.016 -0.017 -0.016
OWNERSHIP (-1.090) (-1.024) (-1.379) (-1.298)
DUMMYi,t
INVESTMENT Yes Yes Yes Yes
GRADE
DUMMIESi,t
Constant 0.749*** 0.732*** 0.749*** 0.732***
17

(4.998) (4.767) (4.193) (4.023)
Year Fixed Effect Yes Yes Yes Yes
Firm Fixed Effect Yes Yes Yes Yes
Observations 9376 9376 9376 9376
R2 0.010 0.010 0.010 0.010
Notes. Robust t statistics in parentheses in columns (1)–(2), and bootstrap z statistics in parentheses in columns
(3)–(4). All standard errors are clustered at firm level. R2 is based on fixed-effects (within) regression. * p < 0.1, ** p
< 0.05, *** p < 0.01.
4.2.2. Regression Results based on PSM Sample

One concern of the Heckman-type model regression results is that we cannot model the selection process
with high accuracy and comprehensiveness. Not all factors that contribute to CDS trading can be measured
in the selection equation. Omitted variables could exist which could simultaneously affect CDS trading
probability and the firm’s operational efficiency. To address this issue and alleviate the concerns about
endogeneity problems, we will consider different matching techniques in the next two parts. The first
matching technique we consider is the PSM method (Goh et al. 2013; Chen et al. 2021; Petryk et al. 2022).
Following Li (2016), Bapna et al. (2019), Khurana et al. (2019), and Wang et al. (2022), we first use PSM
to create a “proper” control group for the treated firms. The PSM matching process is as follows. Given we
focus on predicting the likelihood of CDS trade initiation, we follow Subrahmanyam et al. (2014) and
Chang et al. (2019) and only keep the observations one year before CDS initiation for CDS active firms
and all the observations from 1996 to 2008 for non-CDS firms. Then, we randomly sort all firms and run a
logit model, controlling for the firm’s observable characteristics that could affect CDS trading in the one
year before CDS initiation on the right-hand side, to derive the propensity scores. By matching each treated
firm with one control firm with the closest propensity score, we obtain the PSM-matched firms. The logit
regression model is as follows:
Logit(CDS𝑖𝑡 = 1) = 𝛼0 + 𝛼1 𝐹𝑖𝑟𝑚 𝑆𝑖𝑧𝑒𝑖,𝑡−1 + 𝛼2 𝐹𝑖𝑟𝑚 𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑙𝑖𝑡𝑦𝑖,𝑡−1 + 𝛼3 𝐹𝑖𝑟𝑚 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒𝑖,𝑡−1 +

𝛼4 𝐹𝑖𝑟𝑚 𝐴𝑔𝑒𝑖,𝑡−1 + 𝛼5 𝐹𝑖𝑟𝑚 𝐴𝑑𝑣𝑒𝑟𝑡𝑖𝑠𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑖,𝑡−1 + 𝛼6 𝑀𝑎𝑟𝑘𝑒𝑡 − 𝑡𝑜 − 𝐵𝑜𝑜𝑘𝑖,𝑡−1 +
𝛼7 𝐶𝑟𝑒𝑑𝑖𝑡 𝑅𝑎𝑡𝑖𝑛𝑔 𝐷𝑢𝑚𝑚𝑦𝑖,𝑡−1 + 𝛼8 𝐶𝑎𝑠ℎ𝑖,𝑡−1 + 𝛼9 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑖,𝑡−1 + 𝛼10 𝑃𝑃𝐸𝑁𝑇𝑖,𝑡−1 +
𝛼11 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖,𝑡−1 + 𝛼12 𝐼𝑛𝑠𝑡𝑖𝑡𝑢𝑡𝑖𝑜𝑛𝑎𝑙 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝐷𝑢𝑚𝑚𝑦𝑖,𝑡−1 +
𝐶𝑜𝑛𝑡𝑟𝑜𝑙 (𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝐺𝑟𝑎𝑑𝑒, 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦, 𝑌𝑒𝑎𝑟). (5)
Next, we obtain all the observations from 1997 to 2014 for the PSM-matched firms and use the
new sample created to conduct the PSM-difference-in-differences (DiD) test by re-estimating our
regression equation (3) (Cheng et al. 2020; Pan and Qiu 2021; Fan et al. 2022; Kumar et al. 2022a, b).9 The
9
For our setting, a typical DiD regression model should be 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦𝑖,𝑡+1 = 𝑎0 + 𝛽1 𝐶𝐷𝑆 𝐹𝑖𝑟𝑚 𝑖 ×
𝑃𝑜𝑠𝑡𝑖𝑡 + 𝛽2 𝐶𝐷𝑆 𝐹𝑖𝑟𝑚 𝑖 + 𝛽3 𝑃𝑜𝑠𝑡𝑡 + 𝑎𝑖 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝑖𝑡 , where 𝐶𝐷𝑆 𝐹𝑖𝑟𝑚 𝑖 is the treatment dummy that equals 1 if
a firm has CDS trading on its debt during our sample period; otherwise, 0. 𝑃𝑜𝑠𝑡𝑖𝑡 is the post-treatment dummy that
equals 1 in the post-CDS period; otherwise, 0. When year and firm fixed effects are controlled, including 𝐶𝐷𝑆 𝐹𝑖𝑟𝑚 𝑖
18

comparison of the summary statistics of the treatment group and control group before and after PSM are
shown in the Online Appendix (Table OA5). Table 6 reports our basic findings, and the results are
consistent with those in our baseline model. In addition, the effect of CDS on a firm’s operational efficiency
becomes larger after addressing the omitted variables concern, which is 10.58% (11.29%) on average based
on Operational Efficiency 1 (Operational Efficiency 2), compared with our baseline results.
Table 6. Test on PSM-Matched Sample

(1) (2) (3) (4)
EFFICIENCY EFFICIENCY EFFICIENCY EFFICIENCY
1i,t+1 2i,t+1 1i,t+1 2i,t+1
𝑪𝑫𝑺𝒊𝒕 0.055** 0.056** 0.055*** 0.056***

(2.580) (2.550) (3.145) (3.175)
FIRM SIZEi,t -0.002 -0.002 -0.002 -0.002
(-0.155) (-0.115) (-0.191) (-0.097)
FIRM PROFITABILITYi,t -0.147* -0.140* -0.147*** -0.140
(-1.873) (-1.746) (-3.168) (-1.621)
FIRM LEVERAGEi,t -0.010 -0.009 -0.010 -0.009
(-0.151) (-0.134) (-0.164) (-0.132)
FIRM AGEi,t 0.020 0.017 0.020 0.017
(0.864) (0.732) (0.871) (0.870)
FIRM ADVERTISING -1.021** -1.030** -1.021*** -1.030**
EXPENSEi,t (-2.404) (-2.370) (-3.326) (-2.564)
MARKET-TO-BOOKi,t -0.000 -0.000 -0.000 -0.000
(-0.223) (-0.255) (-0.251) (-0.245)
CREDIT RATING DUMMYi,t 0.029 0.030 0.029 0.030
(0.282) (0.278) (0.421) (0.258)
CASHi,t 0.248*** 0.262*** 0.248** 0.262**
(2.643) (2.721) (2.262) (2.529)
(-0.173) (-0.110) (-0.193) (-0.090)
PPENTi,t -0.152 -0.145 -0.152* -0.145
(-1.281) (-1.195) (-1.833) (-1.003)
WOKRING CAPITALi,t 0.007 -0.003 0.007 -0.003
(0.085) (-0.031) (0.075) (-0.024)
INSTITUTIONAL 0.024 0.025 0.024 0.025
OWNERSHIP DUMMYi,t (1.071) (1.095) (1.043) (0.985)
INVESTMENT GRADE
Yes Yes Yes Yes
DUMMIESi,t
Constant 0.626*** 0.602*** 0.626*** 0.602***
(3.155) (2.955) (4.181) (2.848)
Observations 3362 3362 3362 3362
R2 0.041 0.042 0.041 0.042
Notes: Robust t statistics in parentheses in columns (1)–(2), and bootstrap z statistics in parentheses in columns (3)–
(4). All standard errors are clustered at firm level. R2 is based on fixed-effects (within) regression. * p < 0.1, ** p < 0.05,
and 𝑃𝑜𝑠𝑡𝑖𝑡 in the model is unnecessary, and the DiD model is then reduced to model (3) where
𝐶𝐷𝑆𝑖,𝑡 = 𝐶𝐷𝑆 𝐹𝑖𝑟𝑚 𝑖 × 𝑃𝑜𝑠𝑡𝑖𝑡 .
19

*** p < 0.01.
4.2.3. Regression Results based on CEM Sample

PSM is an approximate matching approach. To increase the robustness of our matched sample, we will use
an exact matching method in this part, namely, CEM, to construct our matched sample. As noted by
previous studies (Blackwell et al. 2009; Iacus et al. 2012; Chen et al. 2022), CEM is faster, easier to use,
requires fewer assumptions, robust to measurement error, and strictly bounds both the degree of model
dependence and the average treatment-effect estimation error through ex-ante user choice. To implement
the CEM method, we need to first coarsen our data, determine an exact match on these coarsened data, and
then conduct our analysis on the un-coarsened, matched data.
Our CEM matching process is as follows. Similar to the PSM matching, we only keep the
observations one year before CDS initiation for CDS active firms and all the observations from 1996 to
2008 for non-CDS firms. Then, we define the cut-points for each continuous control variable and coarsen
our data on the basis of the dummy control variables and cut-points of continuous control variables in
equation (5). Then, we create one stratum per unique observation of coarsened data and assign these strata
to the original (un-coarsened) data and match treated firms with control firms within each stratum. We also
use the k2k option to ensure that we have the same number of CDS and non-CDS firms. Our matched
sample includes all the observations from 1997 to 2014 of the matched firms. The univariate imbalance for
each control variable after CEM is shown in the Online Appendix (Table OA6).
Next, we obtain all the observations from 1997 to 2014 for the CEM-matched firms and use the
new sample to re-estimate our regression equation (3), and we present our results in Table 7. Our basic
findings are consistent with those in our baseline model. And the increased level of operational efficiency
due to the inception of CDS also enlarges, which is 10.19% (10.89%) on average based on Operational
Efficiency 1 (Operational Efficiency 2).
Table 7. Regression Results based on CEM-Matched Sample

(1) (2) (3) (4)
𝑪𝑫𝑺𝒊𝒕 0.053** 0.054** 0.053** 0.054**

(2.232) (2.169) (2.219) (2.335)
Controls Yes Yes Yes Yes
Year Fixed Yes Yes Yes Yes
Effect
Observations 2509 2509 2509 2509
R2 0.052 0.052 0.052 0.052
Notes: Robust t statistics in parentheses in columns (1)–(2), Bootstrap z statistics in parentheses in columns (3)–
20

(4). Controls are the same as in baseline regression. All standard errors are clustered at the firm level. R2 is based
on fixed-effects (within) regression. * p < 0.1, ** p < 0.05, *** p < 0.01.
4.2.4. Instrumental Variable Approach

Although we have conducted the analysis on the basis of the Heckman correction model and PSM/CEM
matched sample to alleviate the concerns about sample selection bias and omitted variables, characteristics
may exist and affect CDS trading probability and the firm’s operational efficiency. However, we cannot
directly control this possible scenario in our model. In this part, we conduct a two-stage regression using
Instrumental Variable (IV) to address the potential endogeneity issue further. Following Subrahmanyam et
al. (2014), we implement the Lender Tier 1 Capital as the IV defined as the average of the Tier 1 capital
level across the banks that have served as lenders or bond underwriters for a particular firm over the
previous five years. As mentioned in the Heckman selection model, banks’ Tier 1 capital should negatively
affect the probability of CDS trading on a firm’s debt and are less likely to affect a firm’s operational
efficiency directly or through other channels. To correct the standard errors, we run the regression on the
basis of the GMM method. Table 8 reports the empirical results. The coefficients of CDS are positive and
marginally significant (the coefficients are significant at the 5% level in the one-tailed test), demonstrating
the consistency of the findings after addressing the endogeneity. And the increased level of operational
efficiency due to the inception of CDS becomes even larger, which is 23.46% (23.99%) on average based
on Operational Efficiency 1 (Operational Efficiency 2) since the IV approach can address both observed
and unobserved confounders.
Besides, to further alleviate the concerns of endogeneity issues, we follow the procedures in
Wooldridge (2010) to merge Heckman correction and two-stage least squares (2SLS) models, which
combine selection and endogenous treatment methods together. The results are shown in Online Appendix
(Table OA7), and the coefficients of CDS are all significantly positive after controlling for selection and
endogenous issues together.
Table 8. Instrumental Variable GMM Regression: Lender Tier 1 Capital

(1) (2)
OPERATIONAL EFFICIENCY OPERATIONAL EFFICIENCY
1i,t+1 2i,t+1
̂𝒊𝒕
𝑪𝑫𝑺 0.122* 0.119*
(1.916) (1.824)
FIRM SIZEi,t -0.006 -0.006
(-1.166) (-1.122)
FIRM PROFITABILITYi,t -0.006 -0.005
(-1.413) (-1.307)
FIRM LEVERAGEi,t 0.001 0.001
(0.359) (0.416)
21

FIRM AGEi,t -0.008 -0.007
(-0.936) (-0.809)
-0.010 -0.002
FIRM ADVERTISING EXPENSEi,t
(-0.088) (-0.020)
MARKET-TO-BOOKi,t -0.000* -0.000*
(-1.687) (-1.767)
CREDIT RATING DUMMYi,t 0.036 0.025
(0.673) (0.453)
CASHi,t 0.027 0.027
(0.830) (0.814)
RETAINED EARNINGSi,t 0.003** 0.003**
(2.043) (2.000)
PPENTi,t -0.022 -0.023
(-0.818) (-0.814)
WOKRING CAPITALi,t -0.019 -0.020
(-0.954) (-0.996)
INSTITUTIONAL OWNERSHIP -0.006 -0.006
DUMMYi,t (-0.545) (-0.549)
INVESTMENT GRADE
Yes Yes
DUMMIESi,t
Year Fixed Effect Yes Yes
Firm Fixed Effect Yes Yes
Observations 9954 9954
Notes: Robust t statistics in parentheses in columns (1)-(2). All standard errors are clustered at firm level. R2 is not
reported because “R2 has no statistical meaning in the context of 2SLS/IV” (Ref:
https://www.stata.com/support/faqs/statistics/two-stage-least-squares/. Last accessed on September 5th, 2021). GMM
results are obtained using command xtabond2 in STATA. Observations with missing Lender Tier 1 Capital are
dropped. * p < 0.1, ** p < 0.05, *** p < 0.01.
4.3 One-Year around CDS Initiation Analysis

In addition to the endogeneity issues, there is another concern, which is that the main independent variable
CDS in our regression models may change its value between 0 and 1, and back and forth for some firms.
In other words, some treated firms may become untreated in some years, and then become treated in other
years. This treatment switch may affect our estimation results. Due to the data limitation, we cannot solve
this problem directly. However, we believe that the effect of this treatment switch on our estimation is little
since most CDS are long-term with five-year the most typical maturity (Galil et al. 2014; Mengle 2007).
Besides, since CDS trading can help improve firms’ operational efficiency, then this treatment switch would
bias our results downwards, meaning that the positive effect of CDS trading on operational efficiency would
be more significant if we can rule out the treatment switch effect. What’s more, we conduct an additional
analysis that only employs the observations in one-year around CDS initiation based on the PSM-matched
sample to address this issue. We believe that in such a short window, the treated firms would not switch
between treatment and control groups. The results are shown in Online Appendix (Table OA8), showing
the consistent results.
4.4 Mediating Factors
22

To further explore how CDS trading increases firms’ operational efficiency, for example, in our theory and
hypothesis, supply chain financing and corporate monitoring can be two possible mediating factors through
which the firms’ operational efficiency is improved when CDSs are present. Accordingly, we further
examine the mediating effects of trade credit on supply chain finance and institutional ownership on
corporate monitoring by utilizing the Sobel test (Sobel 1982; 1987; MacKinnon et al. 2000; Ding et al.
2021; Yan et al. 2022). The regression models of the mediation tests are as follows:
𝑇𝑟𝑎𝑑𝑒 𝐶𝑟𝑒𝑑𝑖𝑡𝑖,𝑡+1 (Or 𝐼𝑛𝑠𝑖𝑡𝑢𝑡𝑖𝑜𝑛𝑎𝑙 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝𝑖,𝑡 ) = 𝛼0 + 𝛽1 𝐶𝐷𝑆𝑖,𝑡 + 𝑎𝑖 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝑖𝑡

{𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦𝑖,𝑡+1 = 𝑎0 + 𝛾1 𝑇𝑟𝑎𝑑𝑒 𝐶𝑟𝑒𝑑𝑖𝑡𝑖,𝑡+1 (Or 𝐼𝑛𝑠𝑖𝑡𝑢𝑡𝑖𝑜𝑛𝑎𝑙 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝𝑖,𝑡 ) (6)
+ 𝛿1 𝐶𝐷𝑆𝑖𝑡 + 𝑎𝑖 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝑖𝑡 ,
where 𝛽1 × 𝛾1 captures the total mediation effect (indirect effect), and 𝛿1 captures the direct effect of CDS
trading on operational efficiency. If the mediation effect of one particular mediating factor occurs, then,
𝛽1 × 𝛾1 should be significant. Control variables are the same as in the baseline regression (equation [3]),
and firm and year fixed effects are controlled.
Following Fisman and Love (2003), we use Accounts Payable/Cost of Goods Sold as the Trade
Credit measure (Trade Credit10) and report our results in Panel A of Table 9. The results are based on the
PSM matched sample. The empirical findings show that the introduction of CDS trading could significantly
increase the trade credit (marginally significant in the two-tailed test and significant at the 5% level in the
one-tailed test), which in turn would positively affect a firm’s operational efficiency. The Z statistics of
Sobel tests show that the mediation effect of trade credit is marginally significant (significant at the 5%
level in the one-tailed test). The findings support Hypothesis 2a.
We further explore the impacts of CDS trading on firm institutional monitoring. We use the firm’s
institutional ownership ratio as a measure of institutional monitoring (Institutional Ownership). Panel B of
Table 9 presents the results. The results show that the initiation of CDS trading could significantly increase
institutional ownership and the institutional monitoring could significantly increase the firm’s operational
efficiency. The Sobel tests of the coefficient estimate of 𝛽1 × 𝛾1 are significant. Our findings are supporting
Hypothesis 2b.
10
Since trade credit is short-term operational resources, so we use the trade credit in year t+1, which is in the same
period as operational efficiency, in our regression model.
23

Table 9. Test of Mediating Effect
Panel A. Mediating Effect of Trade Credit
OPERATIONAL EFFICIENCY 1i,t+1 OPERATIONAL EFFICIENCY 2i,t+1
TRADE TRADE
0.006* CREDITi,t+1 0.236*** 0.007* CREDITi,t+1 0.244***
(1.849) (3.066) (1.849) (3.102)
𝐶𝐷𝑆𝑖𝑡 OPERATIONAL 𝐶𝐷𝑆𝑖𝑡 OPERATIONAL

0.050*** EFFICIENCY 1i,t+1 0.050*** EFFICIENCY 2i,t+1
(3.038) (3.014)
Coef (𝛽1 × 𝛾1 ) Z Coef (𝛽1 × 𝛾1 ) Z
Goodman 0.0016 1.649* 0.0017 1.653*
Notes. t statistics in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01.
Panel B. Mediating Effect of Institutional Ownership

INSTITUTIONAL INSTITUTIONAL
0.051*** OWNERSHIPi,t 0.086** 0.051*** OWNERSHIPi,t 0.084**
(4.458) (2.323) (4.458) (2.231)
𝐶𝐷𝑆𝑖𝑡 OPERATIONAL 𝐶𝐷𝑆𝑖𝑡 OPERATIONAL
0.048** EFFICIENCY 1i,t+1 0.048** EFFICIENCY 1i,t+1
(2.340) (2.427)
Coef (𝛽1 × 𝛾1 ) Z Coef (𝛽1 × 𝛾1 ) Z
Goodman 0.0043 2.102** 0.0042 2.036**
Notes. t statistics in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01.
24

4.5 Additional Tests
4.5.1. Relative Time Model

Our tests have shown that CDS trading on a firm’s debt would increase the firm’s operational efficiency by
enhancing the firm’s supply chain financing ability. Manifesting this effect takes time for this process. Then,
related questions include how long it takes for CDS trading to take effect on the firm’s operational
efficiency and whether this effect lasts for a long time. To answer this question, we will conduct a dynamic-
DiD test using our PSM-matched sample in this section. Table 10 shows the results. 𝑌𝐸𝐴𝑅 −𝑗 (𝑌𝐸𝐴𝑅 𝑗 ) is
the pre-CDS (post-CDS) year indicator that equals 1 in jth year before (after) the first CDS trading year for
CDS active firm i; otherwise, 0. From the results, we can see that it takes four years for this effect to become
significant and robust, and this effect is a long-lasting effect as the positive relation between CDS trading
and operational efficiency persists after four years. Besides, the insignificant coefficients of 𝑌𝐸𝐴𝑅 −2 ,
+
𝑌𝐸𝐴𝑅 −3 , 𝑌𝐸𝐴𝑅 −3 year indicators support the parallel trend assumption. The coefficients of 𝑌𝐸𝐴𝑅 −1 are
negatively significant, meaning that in our PSM-matched sample, the operational efficiency of CDS active
firms is lower than control firms one year before CDS trading. The difference, however, is in opposite
direction to the post-CDS difference and does not affect the interpretation of our results. In addition, the
results alleviate the concern that the positive relation between CDS trading and operational efficiency is
driven by chance or other time series latent factors. We also conduct the test using the CEM-matched sample,
and the results are shown in the Online Appendix (Table OA9).
Table 10. Relative Time Model Based on PSM-Matched Sample (Sample year: 1994-2014)
(1) (2) (3) (4)
+
𝑌𝐸𝐴𝑅 −3 -0.014 -0.013 -0.014 -0.013
(-0.474) (-0.437) (-0.385) (-0.392)
𝑌𝐸𝐴𝑅 −3 -0.025 -0.023 -0.025 -0.023
(-0.887) (-0.797) (-1.254) (-1.009)
𝑌𝐸𝐴𝑅 −2 0.001 0.001 0.001 0.001
(0.050) (0.052) (0.052) (0.046)
𝑌𝐸𝐴𝑅 −1 -0.042** -0.043** -0.042** -0.043**
(-2.321) (-2.346) (-2.393) (-2.151)
𝑌𝐸𝐴𝑅1 -0.010 -0.009 -0.010 -0.009

(-0.503) (-0.465) (-0.473) (-0.432)
𝑌𝐸𝐴𝑅2 -0.002 -0.001 -0.002 -0.001
(-0.066) (-0.046) (-0.066) (-0.033)
𝑌𝐸𝐴𝑅3 0.011 0.010 0.011 0.010
(0.406) (0.383) (0.337) (0.295)
𝒀𝑬𝑨𝑹𝟒 0.057** 0.056** 0.057** 0.056*
(2.119) (2.078) (2.360) (1.737)
25

𝒀𝑬𝑨𝑹𝟒+ 0.060** 0.058** 0.060** 0.058**
(2.245) (2.138) (2.480) (2.238)
Observations 3796 3796 3796 3796
R2 0.046 0.046 0.046 0.046
Notes. Robust t statistics in parentheses in columns (1) – (2), and bootstrap z statistics in parentheses in columns (3)
– (4). All standard errors are clustered at firm level. R2 is based on fixed-effects (within) regression. * p < 0.1, ** p <
0.05, *** p < 0.01
4.5.2. Subgroup Tests

Another related question is how the effect of CDS trading on underlying firms’ operational efficiency varies
according to different firm characteristics. To answer this question in this part, we will divide the full sample
into different subgroups according to different firm characteristics and re-estimate regression equation (3)
to see the effect of CDS on firms’ operational efficiency in different subsamples. First, given our proposition
that trade credit financing and institutional monitoring are two mechanisms through which CDS affects
underlying firms’ operational efficiency, and our mediation tests also provide evidence to support our
hypothesis, we will use trade credit level and institutional stockholders as the partition criterion.
For the trade credit level, we divide the full sample on the basis of the year-industry (2-digit SIC
codes) median level. If the firm’s trade credit level (Trade Crediti,t) is higher (lower) than the industry (2-
digit SIC codes) median level in the same year, then, the firm-year observation will be assigned to the High-
(Low-) Trade Credit group. For the institutional stockholders, if firm i has institutional stockholders in year
t, then, the observation will be assigned to the With-Institutional Stockholders group; otherwise, the
observation will be assigned to the Without-Institutional Stockholders group. Table 11 (Panels A and B)
displays the results, which show that the positive effect of CDS on firms’ operational efficiency is
significant in both trade credit groups (marginally significant in the two-tailed test and significant at the 5%
level in the one-tailed test in High-Trade Credit group) and only significant for firms without institutional
ownership. The results for institutional stockholders imply that CDS trading plays its role mainly in firms
without institutional stockholders before CDS initiation. Then CDS trading would attract institutional
investors’ attention to invest in the focal firms and the increased institutional monitoring would improve
firms’ operational efficiency.
Next, considering that CDS is traded on firms’ debt, we hypothesize that the effect of CDS on firms’
operational efficiency is more significant in firms with high debt dependency. Following Rajan and
Zingales (1998), we define debt dependency as the sum of debt issuance divided by the sum of capital
expenditures and R&D expenses over the past three years. Then, we divide the full sample on the basis of
the year-industry (2-digit SIC codes) median level. Panel C of Table 11 reports the results. They show that
the positive effect of CDS trading on firms’ operational efficiency is only significant in firms that are highly
26

dependent on debt financing for investment.
Finally, we use operational uncertainty, which is measured as the standard deviation of ROA for
the past five years (Cheng et al. 2021), as another firm characteristic to divide the sample. We partition the
full sample into two groups according to the year-industry (2-digit SIC codes) median level of uncertainty
and re-estimate the baseline regression. Panel D of Table 11 shows the results. Evidently, the positive effect
of CDS trading on firms’ operational efficiency is only significant in firms with stable earnings.
Table 11. Sub-Group Analysis

Panel A: Subgroup Analysis based on Trade Credit
(1) (2) (3) (4)
Low-Trade High-Trade Low-Trade High-Trade
Credit Credit Credit Credit
𝑪𝑫𝑺𝒊𝒕 0.060** 0.040* 0.059** 0.042*

(2.286) (1.706) (2.234) (1.760)
Observations 9196 9668 9196 9668
R2 0.008 0.010 0.008 0.010
Panel B: Subgroup Analysis based on Institutional Stockholders

(1) (2) (3) (4)
Without- Without-
With-Institutional With-Institutional
Institutional Institutional
Stockholders Stockholders
Stockholders Stockholders
𝑪𝑫𝑺𝒊𝒕 0.097*** 0.024 0.096** 0.025

(2.598) (1.200) (2.555) (1.233)
Observations 5984 12880 5984 12880
R2 0.014 0.008 0.015 0.008
Panel C: Subgroup Analysis based on Debt Dependency

(1) (2) (3) (4)
Low-Debt High-Debt Low-Debt High-Debt
Dependency Dependency Dependency Dependency
𝑪𝑫𝑺𝒊𝒕 0.035 0.059** 0.036 0.059**

(1.372) (2.540) (1.393) (2.497)
Observations 9196 9668 9196 9668
27

R2 0.010 0.011 0.010 0.011
Panel D: Subgroup Analysis based on Firm Uncertainty

(1) (2) (3) (4)
Low-Uncertainty High-Uncertainty Low-Uncertainty High-Uncertainty
𝑪𝑫𝑺𝒊𝒕 0.061*** 0.049 0.060*** 0.052

(2.863) (1.548) (2.783) (1.588)
Observations 9196 9668 9196 9668
R2 0.014 0.008 0.013 0.008
Notes: Robust t statistics in parentheses. Control variables are the same as in baseline regression. All standard
errors are clustered at firm level. R2 is based on fixed-effects (within) regression. * p < 0.1, ** p < 0.05, *** p < 0.01.
4.5.3. CDS Trading and Other Financial Performance

If the CDS trading could improve firms’ operational efficiency, then, the increase in operational efficiency
should eventually be translated into a change in firms’ financial performance. In this part, we will see the
effect of CDS trading on firms’ financial performance growth rate. Specifically, we first use operating
income before depreciation scaled by total assets as the financial performance. Then, we use earnings before
interest, taxes, depreciation, and amortization (EBITDA) scaled by total assets as another financial
performance. Table 12 shows the results. From the marginally significant coefficients of 𝐶𝐷𝑆𝑖𝑡 , we can see
that firms with CDS trading on their debt have a higher financial performance growth rate than other firms,
providing evidence to support that the improvement of firms’ operational efficiency from CDS trading is
eventually translated into a change in firms’ financial performance. Our results are robust to other scaling
(sales and revenues).
Table 12. CDS Trading and Other Financial Performance

(1) (2)
OPERATING INCOME
EBITDA GROWTH RATEi,t+1
GROWTH RATEi,t+1
𝑪𝑫𝑺𝒊𝒕 0.107* 0.107*

(1.929) (1.929)
Controls Yes Yes
R2 0.007 0.007
Notes. Robust t statistics in parentheses. Control variables are the same as in baseline regression. All standard
errors are clustered at firm level. R2 is based on fixed-effects (within) regression. * p < 0.1, ** p < 0.05, *** p < 0.01.
28

5. Discussion and Conclusions
In this study, we investigate the impact of CDS trading on underlying reference firms’ operational
efficiency. We first document that CDS trading can significantly improve the underlying reference firm’s
operational efficiency. Then, we further explore the channels under the positive relation between CDS
trading and a firm’s operational efficiency. In particular, we find that CDS presence enhances the trade
credit of the underlying firm. We also postulate that CDS improves institutional monitoring and then obtains
some support. Additionally, we find that the improvement effect of CDS on focal firms’ operational
efficiency is more significant in firms with low trade-credit levels, with no institutional investors, with high
dependence on debt for investment, and with stable earnings. This paper fills an important gap in the
literature about the relation between CDS inception and a firm’s operational efficiency. It provides a
comprehensive understanding and empirical evidence of how financial innovations affect operational
efficiency through supply chain finance and stakeholder relationships. We address the concerns that the
timing of the CDS introduction is endogenous by employing several causal identification strategies and
establishing a robust quantitative relationship between the inception of CDS and the operational efficiency
of underlying reference firms.
Our research contributes to the literature in several ways. Previous studies by various scholars have
examined how internal practices, resources, and capabilities lead to superior operational efficiency.
Researchers have examined how different management practices, supply chain relationships, and IT
innovations contribute to the operational performance and profitability of firms. We examine a different
dimension as how operational capability can be improved and channeled through external facets. We study
how external financial innovations could have affected the operational efficiency of firms.
We explore how financial innovations could lead firms to a different position in the supply chain
and gain efficiency and competitive advantage through such an external positional advantage. Theoretically,
we help scholars understand how competitive advantage can possibly be generated as firms are positioned
differently in the financial market (Johnson and Greening 1999; Parmigiani et al. 2011). We show how
efficiency and competitiveness can be generated in a very different way. We contribute to the RBV of the
firm by understanding how a different positional advantage can lead to a different level of supply chain
advantage and efficiency (Parmigiani et al. 2011; Hitt et al. 2016). We show how positional differences
lead to distinctive stakeholder pressures and advantages, enabling the firm to obtain efficiency gains. We
also postulate how financial innovation through CDS can shape the governance, managerial control, and
efficiency of firms (Freeman 1999; Harrison and Wicks 2013) and then obtain some weak support through
our analyses. In this regard, we provide a different theoretical perspective as how external innovations lead
to internal efficiency through supply chain capability, finance, and corporate control.
Our findings are important to operations managers. Practitioners, particularly those in a senior
29

management position, need to understand that the efficiency and competitive advantage of firms do not
come only internally through stronger systems and routines within the firm but potentially through external
resources such as a different positioning in the financial market. From a strategic perspective, improvements
in efficiency and operations do not come only from continuous process enhancements as initiated by the
firms but are shaped by many external factors, including financial innovations such as CDS inception and
a different positioning in the financial market. This finding is extremely important because, through a
complete understanding of how operational advantage and efficiency are generated, operations and supply
chain executives are equipped with better knowledge, techniques, and resources to improve operational
efficiency as opportunities arise. Without such an understanding, practitioners are likely to miss many
valuable opportunities to take advantage of the external prospects and possibilities as business environments
continue to evolve. Thus the management must pay attention to and respond to external stimuli such as
financial markets and related innovations―such resources and advantages from external could be well
integrated with firms’ daily operations and further establish firms’ additional efficiency and competitive
advantage. Our analysis also shed light on how the management could gain or enhance the newly
established competitive advantage in internal governance, deal negotiation (debt dependency), supply chain
management, risk management, and firms’ overall financial performance.
An understanding of the positional advantage of a firm and how it enhances efficiency through
RBV is also critical to supply chain professionals as they deal with various issues related to supply chain
finance and capability (Craighead et al. 2009; Wuttke et al. 2019). Overall, this paper offers a supplementary
or alternative view to both academics and practitioners on how efficiency and competitive advantage are
generated. We present one of the first studies showing how financial innovations can affect operational
efficiency and what potential channels the influences might generate.
Our findings have direct implications for the ongoing policy debate regarding CDSs. As an
important financial innovation in recent decades, CDSs remain controversial. In the 2007–2009 credit crisis,
CDSs were considered the facilitator of synthetic mortgage-backed securities. During the sovereign default
episodes of Greece and Argentina, CDS buyers were criticized for speculating on government defaults.
Consequently, CDS has drawn the attention of many financial regulators and was regulated by the Basel III
bank regulations and the Dodd-Frank Act (Augustin et al. 2014). Nonetheless, CDS trading has been shown
to promote risk-sharing (Saretto and Tookes 2013) and improve a firm’s innovation by facilitating
underlying reference firms’ risk-taking behaviors (Chang et al. 2019). Our research provides robust
empirical evidence of how the inception of CDS spurs operational efficiency through supply chain finance,
highlighting the beneficial effect of CDS trading on improved efficiency. By reducing information
asymmetry, CDS trading can effectively enhance underlying reference firms’ debt capacities. Therefore,
these underlying reference firms are able to obtain higher trade credit through supply chain finance and
30

improve operational efficiency.
The financial market is under rapid changes with surging innovative financial products. Financial
innovations, although apparently unrelated to internal operations of firms, indeed could change firms’
relations with other stakeholders and lead to a different relational dynamism in the supply chain, potentially
empowering firms to do differently and improve efficiency. An urgent need arises for OM scholars to
understand how the change in relationship dynamics due to external innovations might affect operations
and firm performance. In the rapidly changing business environment, innovative business practices are
consistently generated in different functional areas, and one area of innovation can intentionally or
unintentionally affect the other, as we demonstrate in this research.
The current research has some limitations. First, although our study demonstrates a bright side of
CDS trading in its capacity to enhance operational efficiency, a caveat is that our empirical analysis focuses
on the operational efficiency of underlying reference firms and does not capture all of the complex welfare
effects of CDS trading. The regulation of CDS markets should be based on the trade-off between the
beneficial and detrimental effects of CDS trading, and our research only highlights one such beneficial
effect of CDS trading. Second, the absence of a comprehensive data source for CDS transactions prevented
us from examining the impact of CDS trading volume on operational efficiency, and prevented us from
investigating the effect of CDS abandonment, the opposite of CDS inception, on operational efficiency. We
may conduct the relevant analysis in the future when we can get access to the detailed data, which can help
us understand the effect of CDS on operational efficiency more comprehensively. Third, our current
research only investigates two underlying channels through which CDS trading could affect operational
efficiency. There may be other channels or CDS could affect operational efficiency directly. This could be
investigated with additional theoretical analysis and detailed CDS trading data in the future, through which
we can have a more comprehensive understanding of how CDS trading affects operational efficiency.
Acknowledgment
The authors thank the department editor, the senior editor, and three anonymous reviewers for their valuable
suggestions that have significantly improved this study. The work described in this paper was substantially
supported by the funding for Projects of Strategic Importance of The Hong Kong Polytechnic University
(Project Code: 1-ZE2D). Ruiqi Liu and Yong Jin acknowledge the support from the Center for Economic
Sustainability and Entrepreneurial Finance (CESEF), PolyU AF. Yangyang Fan acknowledges the General
Research Fund from the Research Grants Council of Hong Kong (Project No. 15508219). Andy Yeung was
supported in part by PolyU’s research fund 99QP. Ruiqi Liu and Yong Jin are the corresponding authors of
the article.
31

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35

Online Appendix
OA-1. Stochastic Frontier Estimation (SFE) Model
This appendix describes how the SFE model is developed. The stochastic frontier estimation model,
first developed by Aigner et al. (1977) and Meeusen and van den Broeck (1977), specify firms’
production output as:
𝑌𝑖 = 𝑓(𝑋𝑖 , 𝛽) + 𝜀𝑖 (OA.1)
where 𝑌𝑖 is the output for observation i; 𝑓(𝑋𝑖 , 𝛽) is the production function, in which 𝑋𝑖 is the
vector of inputs for observation i, 𝛽 is the vector of parameters; and 𝜀𝑖 is the error term for
observation i, which is made up of two independent components: 𝜀𝑖 = 𝑣𝑖 − ℎ𝑖 . 𝑣𝑖 is an i.i.d.
N(0, 𝜎𝑣2 ) error term representing the usual statistical noise. ℎ𝑖 is a non-negative term representing
technical inefficiency, which measures the shortfall of output 𝑌𝑖 from its maximal possible value
given by the stochastic frontier 𝑓(𝑋𝑖 , 𝛽) + 𝑣𝑖 . Taking the production function 𝑓(𝑋𝑖 , 𝛽) as a log-
linear Cobb-Douglas form and treating the number of employees, the cost of goods sold, and
capital expenditure as operational resources, and operating income as operational output, the
stochastic production function model would be:
𝑙𝑛 (𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒)𝑖𝑗𝑡 = 𝑏0 + 𝑏1 𝑙𝑛(𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠)𝑖𝑗𝑡 +

𝑏2 𝑙𝑛(𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑)𝑖𝑗𝑡 + 𝑏3 𝑙𝑛(𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒)𝑖𝑗𝑡 + 𝑣𝑖𝑗𝑡 − ℎ𝑖𝑗𝑡 (OA.2)
for which 𝑣𝑖𝑗𝑡 is the random error based on stochastic modeling, and ℎ𝑖𝑗𝑡 represents the loss of
efficiency by firm 𝑖 relative to industry 𝑗 in year t (estimates based on 2-digit SIC codes).

OA-2. Data Appendix
This appendix provides more detailed information about the data, regression results, and analysis.
OA-2.1 Variable definitions
Table OA1 describes the definitions of variables that we used in our regressions.
Table OA1. Variable Definitions
Variable Definition
A dummy that equals 1 if the option observation is
𝐶𝐷𝑆𝑖𝑡
associated CDS, and 0 otherwise.
Firm's operational efficiency is suggested by Battese and
OPERATIONAL EFFICIENCY 1i,t Coelli (1988) and estimated by half-normal distributions at
year 𝑡.
Firm's operational efficiency is suggested by Jondrow et al.
OPERATIONAL EFFICIENCY 2i,t
(1982) and estimated by half-normal distributions at year 𝑡.
FIRM SIZEi,t Log of firm's total assets (at).
FIRM PROFITABILITYi,t Firm's return on assets (ni/at).
FIRM LEVERAGEi,t Firm's total liability (lt) divided by total assets (at)
Log of one plus years since firm’s IPO. For firms that do not
FIRM AGEi,t have IPO date, we use the date they first appeared in CRSP
as the IPO date.
FIRM ADVERTISING EXPENSEi,t Firm's advertising expense (xad) divided by total assets (at)
MARKET-TO-BOOKi,t Firm's market value divided by its book value
A dummy variable that equals 1 if a firm has a Standard &
CREDIT RATING DUMMYi,t
Poor’s debt rating; otherwise, 0
CASHi,t Firm’s cash (che) divided by total assets (at)
RETAINED EARNINGSi,t Firm’s retained earnings (re) divided by total assets (at)
Firm’s property, plant, and equipment (ppent) divided by
PPENTi,t
total assets (at)
WOKRING CAPITALi,t Firm’s working capital (wcap) divided by total assets (at)
A dummy that equals 1 if the firm has institutional
INSTITUTIONAL OWNERSHIP DUMMYi,t
stockholders in year t, and 0 otherwise.
INVESTMENT GRADE DUMMYi,t Dummies assigned to each investment grade level.
TRADE CREDITi,t Accounts payable divided by the cost of goods sold
INSTITUTIONAL OWNERSHIPi,t Total institutional ownership ratio.

OA-2.2 Sample Distribution by Industry
Table OA2 reports the distribution of CDS firms (Panel A) and the final sample (Panel B) by 2-digit SIC industry.
Table OA2. Sample Distribution by Industry
Panel A: CDS firms distribution by 2-digit SIC industry

Ratio of total Aggregate
SIC code Included industries N
CDS firms ratio
01 Agricultural production - crops 2 0.75% 0.75%
13 Petroleum, gas, and oil services 2 0.75% 1.51%
14 Mining & quattying of nonmetallic minerals (no fuels) 1 0.38% 1.89%
20 Food 20 7.55% 9.43%
21 Tobacco products; cigarettes 4 1.51% 10.94%
22 Textile mills and products, carpets & rugs 1 0.38% 11.32%
23 Apparel & other fabricated textile products 5 1.89% 13.21%
26 Papers & allied products & mills 4 1.51% 14.72%
27 Publishing & printing & related service 8 3.02% 17.74%
28 Chemicals & allied products 30 11.32% 29.06%
29 Petroleum refining, coal & miscellaneous products 1 0.38% 29.43%
30 Rubber & plastics products 7 2.64% 32.08%
32 Glass & glass products, clay products, stone products 1 0.38% 32.45%
33 Steel products and mills, nonferrous metals 1 0.38% 32.83%
34 Metal machinery & equipment 2 0.75% 33.58%
35 Machinery & equipment, computer & office equipment, 20 7.55% 41.13%
36 Electronic & other electrical equipment 15 5.66% 46.79%
37 Transportation equipment 4 1.51% 48.30%
38 Laboratory & measuring & medical & photographic equipment & supplies 4 1.51% 49.81%
Jewelry, precious metal, musical instruments, toys, sporting goods,
39 3 1.13% 50.94%
miscellaneous manufacturing industries
42 Trucking (no air) and related services 1 0.38% 51.32%
44 Water transportation 2 0.75% 52.08%
45 Air transportation & related services 8 3.02% 55.09%
47 Transportation services 1 0.38% 55.47%
48 Communications & broadcasting services 34 12.83% 68.30%
50 Wholesale – durable goods 2 0.75% 69.06%
51 Wholesale – nondurable goods 2 0.75% 69.81%
52 Retail – building materials, hardware, garden supply, mobile home dealers 2 0.75% 70.57%

53 Retail – department stores 12 4.53% 75.09%
54 Retail – food & convenience stores 6 2.26% 77.36%
55 Retail – auto dealers & gasoline stations & home supply stores 3 1.13% 78.49%
56 Retail – apparel & accessory stores 3 1.13% 79.62%
57 Retail – home furniture, furnishings & equipment stores 4 1.51% 81.13%
58 Retail – eating & drinking places 6 2.26% 83.40%
59 Retail – miscellaneous retail 4 1.51% 84.91%
72 Services – personal services 1 0.38% 85.28%
73 Services – advertising & agencies & computer & business services 24 9.06% 94.34%
75 Services – Automotive services 1 0.38% 94.72%
79 Services – amusement & recreation services 11 4.15% 98.87%
80 Services – health services 2 0.75% 99.62%
87 Services – engineering, accounting, research, management 1 0.38% 100.00%
Total 265 100.00% 100.00%
Panel B: Final sample distribution by 2-digit SIC industry

CDS active
Ratio in total CDS active firm-year ratio
SIC Firm-year
Included industries firm-year firm-year in
code observations
observations observations corresponding
industry
01 Agricultural production - crops 26 0.13% 7 26.90%
10 Metal mining; gold and silver ore; miscellaneous metal ores 33 0.16% 0 0.00%
12 Bituminous coal and lignite mining 18 0.09% 0 0.00%
13 Petroleum, gas, and oil services 87 0.43% 14 16.10%
14 Mining & quattying of nonmetallic minerals (no fuels) 23 0.11% 0 0.00%
15 General BLDG contractors; operative builders 13 0.06% 0 0.00%
Heavy construction (other than BLDG), water, sewer, pipeline,
16 18 0.09% 0 0.00%
comm&power line construction
17 Special trade contractors; electrical work 13 0.06% 0 0.00%
20 Food 908 4.48% 185 20.40%
21 Tobacco products; cigarettes 41 0.20% 27 65.90%
22 Textile mills and products, carpets & rugs 54 0.27% 9 16.70%
23 Apparel & other fabricated textile products 378 1.86% 37 9.79%
24 Lumber & wood products (no furniture) and mills; mobile homes 101 0.50% 0 0.00%
25 Furniture & fixtures 210 1.04% 0 0.00%
26 Papers & allied products & mills 131 0.65% 35 26.70%
27 Publishing & printing & related service 248 1.22% 39 15.70%
28 Chemicals & allied products 1,805 8.90% 254 14.10%
29 Petroleum refining, coal & miscellaneous products 32 0.16% 1 3.13%

30 Rubber & plastics products 215 1.06% 74 34.40%
31 Leather & leather products, footwear (no rubber) 217 1.07% 0 0.00%
32 Glass & glass products, clay products, stone products 109 0.54% 14 12.80%
33 Steel products and mills, nonferrous metals 118 0.58% 8 6.78%
34 Metal machinery & equipment 308 1.52% 16 5.19%
35 Machinery & equipment, computer & office equipment, 1,328 6.55% 150 11.30%
36 Electronic & other electrical equipment 1,918 9.45% 135 7.04%
37 Transportation equipment 298 1.47% 34 11.40%
Laboratory & measuring & medical & photographic equipment &
38 1,559 7.68% 18 1.15%
supplies
Jewelry, precious metal, musical instruments, toys, sporting goods,
39 351 1.73% 45 12.80%
miscellaneous manufacturing industries
42 Trucking (no air) and related services 83 0.41% 6 7.23%
44 Water transportation 39 0.19% 30 76.90%
45 Air transportation & related services 195 0.96% 86 44.10%
47 Transportations services 37 0.18% 7 18.90%
48 Communications & broadcasting services 1,111 5.48% 251 22.60%
49 Electric, gas & sanitary services 70 0.35% 0 0.00%
50 Wholesale – durable goods 379 1.87% 6 1.58%
51 Wholesale – nondurable goods 223 1.10% 23 10.30%
Retail – building materials, hardware, garden supply, mobile home
52 73 0.36% 23 31.50%
dealers
53 Retail – department stores 278 1.37% 144 51.80%
54 Retail – food & convenience stores 261 1.29% 48 18.40%
55 Retail – auto dealers & gasoline stations & home supply stores 237 1.17% 40 16.90%
56 Retail – apparel & accessory stores 548 2.70% 41 7.48%
57 Retail – home furniture, furnishings & equipment stores 213 1.05% 39 18.30%
58 Retail – eating & drinking places 700 3.45% 65 9.29%
59 Retail – miscellaneous retail 719 3.54% 52 7.23%
70 Hotels, rooming houses, camps & other lodging places 88 0.43% 0 0.00%
72 Services – personal services 71 0.35% 11 15.50%
73 Services – advertising & agencies & computer & business services 3,204 15.79% 156 4.87%
75 Services – Automotive services 36 0.18% 5 13.90%
78 Services – motion picture 108 0.53% 0 0.00%
79 Services – amusement & recreation services 386 1.90% 77 19.90%
80 Services – health services 256 1.26% 12 4.69%
82 Services – educational services 172 0.85% 0 0.00%
83 Services – social services 28 0.14% 0 0.00%
87 Services – engineering, accounting, research , management 214 1.05% 8 3.74%
Total 20,289 100.00% 2,232 11.00%

OA-2.3 Variable Correlations
In Table OA3, we tabulate correlations among all the variables that we include in our analysis. Our results show that CDSit is highly
correlated with all operational efficiency variables in the next year (correlations are 0.024 and 0.024, respectively, p < .01).
Table OA3. Correlation Table
（1）（2）（3）（4）（5）（6）（7）（8） (9)

OPERATIONAL EFFICIENCY 1i,t+1 (1) 1
OPERATIONAL EFFICIENCY 2i,t+1 (2) 0.998 1
CDSi,t (3) 0.024 0.024 1
FIRM SIZEi,t (4) 0.027 0.027 0.509 1
FIRM PROFITABILITYi,t (5) 0.009 0.011 0.106 0.398 1
FIRM LEVERAGEi,t (6) 0.004 0.004 0.069 -0.142 -0.558 1
FIRM AGEi,t (7) 0.043 0.046 0.308 0.295 0.161 0.007 1
FIRM ADVERTISING EXPENSEi,t (8) 0.005 0.005 -0.005 -0.087 -0.252 0.091 -0.106 1
MARKET-TO-BOOKi,t (9) 0 0 0.047 0.063 0.101 -0.134 -0.003 0.042 1
CREDIT RATING DUMMYi,t (10) 0.030 0.030 0.533 0.670 0.158 0.106 0.247 -0.022 0.038
CASHi,t (11) -0.025 -0.026 -0.143 -0.192 -0.090 -0.214 -0.193 0.119 0.103
RETAINED EARNINGSi,t (12) 0.012 0.013 0.092 0.414 0.708 -0.624 0.087 -0.128 0.074
PPENTi,t (13) 0.015 0.014 0.131 0.192 0.067 0.094 0.060 -0.062 -0.039
WOKRING CAPITALi,t (14) -0.003 -0.003 -0.083 0.065 0.498 -0.786 -0.006 -0.080 0.114
INSTITUTIONAL OWNERSHIP DUMMYi,t (15) 0.001 0.003 0.074 0.256 0.229 -0.174 0.139 -0.096 0.032
TRADE CREDITi,t (16) 0.011 0.010 -0.049 -0.184 -0.367 0.301 -0.099 0.255 0.002
INSTITUTIONAL OWNERSHIPi,t (17) 0.021 0.021 0.220 0.450 0.241 -0.144 0.178 -0.088 0.070
（10）（11）（12）（13）（14）（15）（16）（17）

CREDIT RATING DUMMYi,t (10) 1
CASHi,t (11) -0.259 1
RETAINED EARNINGSi,t (12) 0.163 -0.114 1
PPENTi,t (13) 0.201 -0.389 0.113 1
WOKRING CAPITALi,t (14) -0.120 0.414 0.519 -0.290 1
INSTITUTIONAL OWNERSHIP DUMMYi,t (15) 0.087 -0.017 0.212 0.039 0.173 1
TRADE CREDITi,t (16) -0.083 0.120 -0.380 -0.129 -0.297 -0.137 1
INSTITUTIONAL OWNERSHIPi,t (17) 0.236 -0.009 0.233 0.022 0.131 0.659 -0.136 1
Notes. Bolded values are significant at the p < 0.05 level.

OA-2.4 Heckman Correction Selection Model Estimation
Table OA4 shows the result of the Heckman correction selection model. When estimating the
selection model, we use data from 1997 to the first year of CDS trading for CDS active firms and
all observations in our sample for non-CDS firms. Industry (2-digit SIC codes) and year-fixed
effects are controlled. The coefficient of Lender Tier 1 Capital is significantly negative, meaning
that lenders or bond underwriters with good financial strength are less likely to initiate CDS trading
on firms’ debt.
Table OA4. Selection Model of Heckman Correction: Determinant of CDS Trading (Probit
Regression)
(1)
CDSi,t
LENDER TIER 1 CAPITALi,t -0.247***

(-3.404)
FIRM SIZEi,t-1 0.402***
(6.104)
FIRM PROFITABILITYi,t-1 0.606
(0.928)
FIRM LEVERAGEi,t-1 1.007***
(4.340)
FIRM AGEi,t-1 0.075
(0.781)
FIRM ADVERTISING EXPENSEi,t-1 1.509**
(2.039)
MARKET-TO-BOOK,t-1 0.007
(0.639)
CREDIT RATING DUMMYi,t-1 0.119
(0.133)
CASHi,t-1 -0.464
(-0.772)
RETAINED EARNINGSi,t-1 0.410*
(1.690)
PPENTi,t-1 0.050
(0.104)
WORKING CAPITALi,t-1 0.436
(0.815)
INSTITUTIONAL OWNERSHIP DUMMYi,t-1 0.198
(1.360)
Constant -2.646**
(-2.039)
INVESTMENT GRADE DUMMIESi,t-1 Yes
Year Fixed Effect Yes
Industry Fixed Effect Yes
Observations 4660
Pseudo R2 0.395
Notes. Robust z statistics in parentheses. All standard errors are clustered at industry-level (2-digit SIC
codes). Observations with missing Lender Tier 1 Capital are dropped. * p < 0.1, ** p < 0.05, *** p < 0.01

OA-2.5 Summary Statistics Before and After PSM
Table OA5 reports the comparison of the summary statistics of the treatment group and control group before and after PSM. The results
show that the differences in summary statistics between the two groups are significantly reduced. The insignificant differences between
the two groups after PSM alleviates the concern of the “improper” control group.
Table OA5. Summary statistics before and after PSM

BEFORE-PSM AFTER-PSM
MEAN T-TEST MEAN T-TEST
TREATED CONTROL T P > |T| TREATED CONTROL T P > |T|
FIRM SIZEi,t-1 8.452 4.770 23.91 0.000 8.352 8.233 0.73 0.466
FIRM PROFITABILITYi,t-1 0.052 -0.157 4.55 0.000 0.047 0.049 -0.18 0.854
FIRM LEVERAGEi,t-1 0.615 0.555 1.41 0.160 0.611 0.659 -1.33 0.186
FIRM AGEi,t-1 2.940 2.355 10.25 0.000 2.875 2.790 0.80 0.425
FRIM ADVERTISING EXPENSEi,t-1 0.038 0.040 -0.38 0.704 0.038 0.037 0.34 0.734
MARKET-TO-BOOKi,t-1 4.512 2.809 3.71 0.000 4.437 4.047 0.53 0.598
CREDIT RATING DUMMYi,t-1 0.911 0.156 27.80 0.000 0.899 0.868 0.87 0.383
CASHi,t-1 0.097 0.211 -7.09 0.000 0.099 0.113 -1.02 0.308
RETAINED EARNINGSi,t-1 0.024 -1.642 3.80 0.000 -0.009 -0.408 0.94 0.349
PPENTi,t-1 0.327 0.219 7.23 0.000 0.324 0.306 0.83 0.408
WORKING CAPITIALi,t-1 0.119 0.223 -3.13 0.002 0.118 0.122 -0.21 0.837
0.667 0.620 1.29 0.199 0.679 0.648 0.59 0.554
DUMMYi,t-1

OA-2.6 Summary Statistics After CEM
Table OA6 reports the univariate imbalance for each control variable after CEM. All the L1 value (except for Firm Size) is less than
0.16, meaning that the imbalance of these measures between treated and control groups is small.
Table OA6. CEM Matching Summary

L1 MEAN MIN Q1 MEDIAN Q3 MAX
FIRM SIZEi,t-1 0.267 0.977 3.852 0.905 0.625 0.650 0
FIRM PROFITABILITYi,t-1 0.060 0.097 3.912 0.008 0.004 0.015 0
FIRM LEVERAGEi,t-1 0.103 0.051 0.070 0.066 0.038 0.044 -0.678
FIRM AGEi,t-1 0.095 0.201 0 0.134 0.194 0.090 0
FRIM ADVERTISING EXPENSEi,t-1 0.069 -0.007 0.000 0.002 -0.002 0.004 -0.236
MARKET-TO-BOOKi,t-1 0.147 0.133 -15.86 0.281 0.334 1.494 0
CREDIT RATING DUMMYi,t-1 0 0 0 0 0 0 0
CASHi,t-1 0.095 -0.028 -0.000 -0.006 -0.021 -0.034 -0.207
RETAINED EARNINGSi,t-1 0.060 0.196 -7.933 -0.011 0.048 0.078 0
PPENTi,t-1 0.112 0.030 -0.002 0.002 0.012 0.104 0.054
WORKING CAPITIALi,t-1 0.155 -0.018 0.922 0.009 -0.029 -0.077 -0.209
0 0 0 0 0 0 0
DUMMYi,t-1
INVESTMENT GRADE i,t-1 0.043 0.017 0 0 0 0 0
Notes. A larger L1 value indicates a larger imbalance between the control and treatment groups, ranging between 0 and 1. MEAN reports the
difference between the two groups in means. The remaining columns in the table report the difference in the empirical quantiles of the distributions
of the two groups for the 0th (MIN), 25th (Q1), 50th (MEDIAN), 75th (Q3), and 100th (MAX) percentiles for each variable.

OA-2.7 Estimation models combining Heckman correction and 2SLS
In order to further alleviate the concerns of endogeneity issues, we follow the procedures in
Wooldridge (2010) to merge Heckman correction and two-stage least squares (2SLS) models,
which combine selection and endogenous treatment methods together. Specifically, we first get
the inverse mills ratio (IMR) through the first-stage Heckman selection model. Then we run the
2SLS model with Lender Tier 1 Capital as the Instrumental Variable (IV) and add IMR as an
additional control variable. Since the coefficients of IMR are significantly different from 0, we use
the bootstrap-based method to run regressions. The results are shown in Table OA7. Columns (1)-
(2) report the second-stage results based on the OLS method and columns (3)-(4) report the second-
stage results based on the GMM method. The coefficients of CDS are all positively significant,
consistent with the main results after controlling for the sample selection and endogenous problems
together.
Table OA7. Estimation results combining Heckman correction and 2SLS

(1) (2) (3) (4)
EFFICIENCY EFFICIENCY EFFICIENCY EFFICIENCY
1i,t+1 2i,t+1 1i,t+1 2i,t+1
̂𝒊,𝒕
𝑪𝑫𝑺 1.215** 1.239** 1.215*** 1.239**
(2.239) (2.078) (2.933) (2.360)
IMR -0.562** -0.574** -0.562*** -0.574**
(-2.116) (-2.022) (-2.828) (-2.252)
FIRM SIZEi,t -0.068* -0.069** -0.068*** -0.069***
(-1.925) (-2.354) (-3.183) (-2.648)
FIRM PROFITABILITYi,t -0.052** -0.051* -0.052*** -0.051***
(-2.088) (-1.950) (-2.796) (-2.733)
FIRM LEVERAGEi,t -0.152** -0.154* -0.152*** -0.154**
(-2.169) (-1.696) (-2.589) (-2.126)
FIRM AGEi,t -0.002 -0.002 -0.002 -0.002
(-0.062) (-0.064) (-0.098) (-0.095)
FIRM ADVERTISING -0.318 -0.303 -0.318 -0.303
EXPENSEi,t (-1.040) (-1.286) (-1.268) (-1.237)
MARKET-TO-BOOK RATIOi,t -0.000 -0.000 -0.000 -0.000
(-0.619) (-0.606) (-0.793) (-0.610)
CREDIT RATING DUMMYi,t 0.041 0.039 0.041 0.039
(0.273) (0.288) (0.380) (0.295)
CASHi,t 0.050 0.053 0.050 0.053
(1.010) (0.784) (1.013) (1.025)
(-0.362) (-0.431) (-0.430) (-0.417)
PPENTi,t -0.074 -0.070 -0.074 -0.070
(-0.739) (-0.841) (-0.961) (-1.036)
WOKRING CAPITALi,t -0.122* -0.124 -0.122** -0.124**
10

(-1.680) (-1.556) (-2.560) (-1.978)
INSTITUTIONAL -0.015 -0.014 -0.015 -0.014
OWNERSHIP DUMMYi,t (-0.615) (-0.770) (-0.795) (-0.836)
INVESTMENT GRADE
Yes Yes Yes Yes
DUMMIESi,t
Observations 9376 9376 9376 9376
Underidentification test Kleibergen-Paap rk LM statistic: 29.93***
Cragg-Donald Wald F statistic 49.264
Weak-identification test
Kleibergen-Paap rk Wald F statistic 33.598
Notes. Bootstrap z statistics in parentheses. All standard errors are clustered at the firm level. R2 is not reported
because “R2 has no statistical meaning in the context of 2SLS/IV” (Ref:
https://www.stata.com/support/faqs/statistics/two-stage-least-squares/. Last accessed on September 5th, 2021).
OLS/GMM results are using xtivreg2 without/with gmm option in STATA. Observations with missing Lender Tier
1 Capital are dropped.
Stock-Yogo weak ID test critical values: 16.38 (10% maximal IV size)
* p < 0.1, ** p < 0.05, *** p < 0.01.
11

OA-2.8 One-Year around CDS Initiation Analysis
Table OA8 shows the results of estimations using only observations in one-year around CDS
initiation (pre-one year, initiation year, post-one year) of PSM-matched firms. Bootstrap-based
results are reported for the robustness reason. The coefficients of CDS are all positively significant,
consistent with the main results.
Table OA8. One-Year around CDS Initiation Analysis

(1) (2)
OPERATIONAL OPERATIONAL
EFFICIENCY 1i,t+1 EFFICIENCY 2i,t+1
𝑪𝑫𝑺𝒊𝒕 0.034** 0.035**

(2.373) (2.103)
FIRM SIZEi,t -0.078 -0.080*
(-0.885) (-1.766)
FIRM PROFITABILITYi,t -0.166* -0.154
(-1.711) (-1.508)
FIRM LEVERAGEi,t 0.151 0.139
(1.514) (0.638)
FIRM AGEi,t -0.023 -0.031
(-0.347) (-0.396)
FIRM ADVERTISING EXPENSEi,t -1.662 -1.718
(-0.840) (-1.240)
MARKET-TO-BOOKi,t 0.002* 0.002
(1.700) (1.041)
CREDIT RATING DUMMYi,t 0.029 0.052
(0.101) (0.393)
CASHi,t 0.468* 0.452*
(1.697) (1.914)
RETAINED EARNINGSi,t 0.261** 0.257*
(2.246) (1.755)
PPENTi,t 0.167 0.200
(0.930) (0.465)
WOKRING CAPITALi,t -0.369 -0.365
(-1.467) (-1.388)
INSTITUTIONAL OWNERSHIP DUMMYi,t -0.017 -0.009
(-0.416) (-0.350)
INVESTMENT GRADE DUMMIESi,t Yes Yes
Constant 1.328* 1.321***
(1.699) (4.114)
R2 0.131 0.127
Notes. Bootstrap z statistics in parentheses. All standard errors are clustered at firm-level. R2 is based
on fixed-effects (within) regression. * p < 0.1, ** p < 0.05, *** p < 0.01
12

OA-2.9 Relative Time Model Based on CEM-Matched Sample
Table OA9 reports the relative time model based on the CEM-matched sample. The results show
that it takes four years for this effect to become significant and robust, and this effect is a long-
lasting effect as the positive relation between CDS trading and operational efficiency persists after
+
four years. Besides, the insignificant coefficients of 𝑌𝐸𝐴𝑅 −2, 𝑌𝐸𝐴𝑅 −3 , 𝑌𝐸𝐴𝑅 −3 year indicators
support the parallel trend assumption. The coefficients of 𝑌𝐸𝐴𝑅 −1 are negatively significant but
not robust, meaning that in our PSM-matched sample, the operational efficiency of CDS active
firms is lower than control firms one year before CDS trading. But the difference is in opposite
direction to the post-CDS difference and does not affect the interpretation of our results. In addition,
the results alleviate the concern that the positive relation between CDS trading and operational
efficiency is driven by chance or other time series latent factors. The results are consistent with
the results based on the PSM-matched sample.
Table OA9. Relative Time Model Based on CEM-Matched Sample (Sample year: 1994-2014)
(1) (2) (3) (4)
+
𝑌𝐸𝐴𝑅 −3 -0.036 -0.036 -0.036 -0.036
(-1.137) (-1.108) (-1.198) (-0.853)
𝑌𝐸𝐴𝑅 −3 -0.031 -0.030 -0.031 -0.030
(-0.905) (-0.848) (-0.918) (-0.801)
𝑌𝐸𝐴𝑅 −2 -0.030 -0.031 -0.030 -0.031
(-0.911) (-0.920) (-1.078) (-0.732)
𝑌𝐸𝐴𝑅 −1 -0.045** -0.046** -0.045 -0.046*
(-2.036) (-2.043) (-1.627) (-1.683)
𝑌𝐸𝐴𝑅1 -0.013 -0.012 -0.013 -0.012

(-0.541) (-0.506) (-0.411) (-0.501)
𝑌𝐸𝐴𝑅2 -0.012 -0.012 -0.012 -0.012
(-0.399) (-0.381) (-0.400) (-0.520)
𝑌𝐸𝐴𝑅3 -0.007 -0.009 -0.007 -0.009
(-0.224) (-0.285) (-0.226) (-0.433)
𝑌𝐸𝐴𝑅4 0.040 0.038 0.040 0.038
(1.267) (1.184) (1.222) (0.986)
𝒀𝑬𝑨𝑹𝟒+ 0.060** 0.059** 0.060*** 0.059**
(2.138) (2.039) (2.616) (2.235)
FIRM SIZEi,t -0.014 -0.016 -0.014 -0.016
(-0.783) (-0.825) (-0.628) (-0.996)
FIRM -0.079 -0.085 -0.079* -0.085
PROFITABILITYi,t (-1.034) (-1.095) (-1.721) (-1.109)
FIRM -0.007 -0.003 -0.007 -0.003
LEVERAGEi,t (-0.107) (-0.045) (-0.135) (-0.050)
FIRM AGEi,t 0.061*** 0.061*** 0.061*** 0.061***
13

(3.193) (3.197) (3.008) (4.081)
FIRM -0.486 -0.514 -0.486 -0.514
ADVERTISING (-1.429) (-1.505) (-1.241) (-1.303)
EXPENSEi,t
MARKET-TO- -0.001 -0.001 -0.001*** -0.001
BOOKi,t (-1.637) (-1.542) (-2.620) (-1.630)
CREDIT RATING -0.004 -0.006 -0.004 -0.006
DUMMYi,t (-0.056) (-0.087) (-0.081) (-0.065)
CASHi,t 0.105 0.099 0.105 0.099
(0.981) (0.896) (0.839) (1.135)
RETAINED 0.031 0.032 0.031 0.032
EARNINGSi,t (1.128) (1.163) (1.016) (1.073)
PPENTi,t -0.087 -0.092 -0.087 -0.092
(-0.721) (-0.751) (-0.836) (-0.741)
WOKRING -0.004 0.006 -0.004 0.006
CAPITALi,t (-0.047) (0.064) (-0.042) (0.077)
INSTITUTIONAL 0.042 0.044 0.042 0.044
OWNERSHIP (1.563) (1.640) (1.099) (1.502)
DUMMYi,t
INVESTMENT
GRADE Yes Yes Yes Yes
DUMMIESi,t
Constant 0.604*** 0.586*** 0.604*** 0.586***
(3.391) (3.193) (2.793) (3.620)
Observations 2789 2789 2789 2789
R2 0.055 0.054 0.055 0.054
Notes. Robust t statistics in parentheses in columns (1) – (2), and bootstrap t statistics in parentheses in
columns (3) – (4). All standard errors are clustered at firm-level. R2 is based on fixed-effects (within)
regression. * p < 0.1, ** p < 0.05, *** p < 0.01
14

References
Aigner, D., C. K. Lovell, P. Schmidt. 1977. Formulation and estimation of stochastic frontier
production function models. Journal of Econometrics 6(1) 21-37.
Meeusen, W., J. van Den Broeck. 1977. Efficiency estimation from Cobb-Douglas production
functions with composed error. International Economic Review 18(2) 435-444.
Wooldridge, J. M. 2010. Censored data, sample selection, and attrition. Econometric analysis of
cross section and panel data. The MIT press, Cambridge, Massachusetts, London, England,
802-814.
15

4.impact of Credit Default Swaps On Firms' Operational Efficiency

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4.impact of Credit Default Swaps On Firms' Operational Efficiency

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Impact of Credit Default Swaps on Firms’ Operational Efficiency

Forthcoming in Production and Operations Management

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2.1. Credit Default Swaps

Figure 1. Credit Default Swap (CDS) Contracts

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2.3. Theory and Research Hypotheses

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2.3.2. Stakeholder Monitoring, Governance, and Control

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Stakeholder Monitoring, Governance and Controls

Enhanced visibility, credibility, and Strengthened corporate

Gains in supply chain financing Enhanced management

Higher operational efficiency

Figure 2. Theoretical Framework

3. Data and Measures

Table 1. Sample Selection Process

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Panel A CDS firms distribution by initiation year

Panel B Sample distribution by year

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𝑙𝑛 (𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒)𝑖𝑗𝑡 = 𝑏0 + 𝑏1 𝑙𝑛(𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠)𝑖𝑗𝑡 +

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Correspondingly, we have two operational efficiency measures: OPERATIONAL EFFICIENCY 1i,t

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Table 3. Summary Statistics

Variable N Mean SD p50 p25 p75 Min Max

4.1. Baseline Analysis

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦𝑖,𝑡+1 = 𝑎0 + 𝛽1 𝐶𝐷𝑆𝑖𝑡 + 𝑎1 𝐹𝑖𝑟𝑚 𝑆𝑖𝑧𝑒𝑖𝑡 + 𝑎2 𝐹𝑖𝑟𝑚 𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑙𝑖𝑡𝑦𝑖𝑡 +

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𝑪𝑫𝑺𝒊𝒕 0.034** 0.034** 0.038** 0.038** 0.038** 0.038**

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4.2.1. Heckman-Type Model

Probit(CDS𝑖,𝑡 = 1) = 𝛼0 + 𝛼1 𝐿𝑒𝑛𝑑𝑒𝑟 𝑇𝑖𝑒𝑟 1 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖,𝑡 + 𝛼2 𝐹𝑖𝑟𝑚 𝑆𝑖𝑧𝑒𝑖,𝑡−1 +

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Table 5. Results of Heckman Correction

𝑪𝑫𝑺𝒊,𝒕 0.068** 0.071** 0.068** 0.071**

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4.2.2. Regression Results based on PSM Sample

Logit(CDS𝑖𝑡 = 1) = 𝛼0 + 𝛼1 𝐹𝑖𝑟𝑚 𝑆𝑖𝑧𝑒𝑖,𝑡−1 + 𝛼2 𝐹𝑖𝑟𝑚 𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑙𝑖𝑡𝑦𝑖,𝑡−1 + 𝛼3 𝐹𝑖𝑟𝑚 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒𝑖,𝑡−1 +

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Table 6. Test on PSM-Matched Sample

𝑪𝑫𝑺𝒊𝒕 0.055** 0.056** 0.055*** 0.056***

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4.2.3. Regression Results based on CEM Sample

Table 7. Regression Results based on CEM-Matched Sample

𝑪𝑫𝑺𝒊𝒕 0.053** 0.054** 0.053** 0.054**

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4.2.4. Instrumental Variable Approach

Table 8. Instrumental Variable GMM Regression: Lender Tier 1 Capital

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4.3 One-Year around CDS Initiation Analysis

4.4 Mediating Factors

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𝑇𝑟𝑎𝑑𝑒 𝐶𝑟𝑒𝑑𝑖𝑡𝑖,𝑡+1 (Or 𝐼𝑛𝑠𝑖𝑡𝑢𝑡𝑖𝑜𝑛𝑎𝑙 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝𝑖,𝑡 ) = 𝛼0 + 𝛽1 𝐶𝐷𝑆𝑖,𝑡 + 𝑎𝑖 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝑖𝑡

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𝐶𝐷𝑆𝑖𝑡 OPERATIONAL 𝐶𝐷𝑆𝑖𝑡 OPERATIONAL

𝑪𝑫𝑺𝒊𝒕 0.034 0.034 0.038 0.038 0.038 0.038

𝑪𝑫𝑺𝒊,𝒕 0.068 0.071 0.068 0.071

𝑪𝑫𝑺𝒊𝒕 0.055 0.056 0.055* 0.056*

𝑪𝑫𝑺𝒊𝒕 0.053 0.054 0.053 0.054

𝑪𝑫𝑺𝒊𝒕 0.097* 0.024 0.096 0.025

𝑪𝑫𝑺𝒊𝒕 0.035 0.059 0.036 0.059

𝑪𝑫𝑺𝒊𝒕 0.061* 0.049 0.060* 0.052

（1）（2）（3）（4）（5）（6）（7）（8） (9)

（10）（11）（12）（13）（14）（15）（16）（17）

𝑪𝑫𝑺𝒊𝒕 0.034 0.035