Abstract

http://ssrn.com/abstract=995728
 
 

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Has the CDS Market Lowered the Cost of Corporate Debt?


Adam B. Ashcraft


Federal Reserve Bank of New York

João A. C. Santos


Federal Reserve Bank of New York

2009


Abstract:     
Many have claimed that credit default swaps (CDSs) have lowered the cost of debt financing to firms by creating new hedging opportunities and information for investors. This paper evaluates the impact that the onset of CDS trading has on the spreads that underlying firms pay to raise funding in the corporate bond and syndicated loan markets. Employing a range of methodologies, we fail to find evidence that the onset of CDS trading lowers the cost of debt financing for the average borrower. Further, we uncover economically significant adverse effects on risky and informationally opaque firms.

Number of Pages in PDF File: 44

Keywords: Credit default swaps, loan spreads, credit spreads.

JEL Classification: G24, G32.

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Date posted: June 21, 2007 ; Last revised: September 16, 2009

Suggested Citation

Ashcraft, Adam B. and Santos, João A. C., Has the CDS Market Lowered the Cost of Corporate Debt? (2009). Available at SSRN: http://ssrn.com/abstract=995728 or http://dx.doi.org/10.2139/ssrn.995728

Contact Information

Adam B. Ashcraft
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045-0001
United States
212-720-1617 (Phone)
212-720-8363 (Fax)
João A. C. Santos (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)
HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML
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