55 Pages Posted: 18 Aug 2010 Last revised: 1 Jul 2012
Date Written: March 7, 2011
Does the ability of suppliers of debt to hedge risk through credit default swap (CDS) contracts impact firms' capital structures? This paper uses CDS markets as a proxy for a relaxation of firms' credit supply constraints and tests whether supply frictions impact capital structure and debt maturity. We find that firms with traded CDS contracts on their debt are able to maintain higher leverage ratios and longer debt maturities. This is especially true during periods in which credit constraints become binding.
Keywords: Leverage, Debt Maturity, CDS, Capital Supply
JEL Classification: G32
Suggested Citation: Suggested Citation
Tookes, Heather and Saretto, Alessio, Corporate Leverage, Debt Maturity and Credit Default Swaps: The Role of Credit Supply (March 7, 2011). Available at SSRN: https://ssrn.com/abstract=1660515 or http://dx.doi.org/10.2139/ssrn.1660515