Credit Default Swaps and Corporate Debt Structure

Whether and how Credit default swaps (CDSs) affect corporate debt structure remains an unanswered question. We find that firms use more public debt and less bank debt when CDSs reference their debt start trading. The results are robust to the endogeneity of CDS trading. Furthermore, the increase in public debt is concentrated in senior bonds and notes, which are the most common CDS reference assets. The effect of CDS trading is most pronounced when bond underwriters take a net selling CDS position and for informationally opaque firms. These findings suggest that the hedging and informational roles of CDSs have real effects on corporate debt structure.

Keywords: Credit Default Swaps, Corporate Debt Structure, Hedging, Information Environment

JEL Classification: G20; G30; G32

Suggested Citation: Suggested Citation

Chen, Yangyang and Saffar, Walid and Shan, Chenyu and Wang, Sarah Qian, Credit Default Swaps and Corporate Debt Structure (August 23, 2021). Available at SSRN: https://ssrn.com/abstract=3170485 or http://dx.doi.org/10.2139/ssrn.3170485