Corporate Leverage, Debt Maturity and Credit Supply: The Role of Credit Default Swaps
74 Pages Posted: 8 Mar 2011 Last revised: 17 Aug 2015
Date Written: October 17, 2012
Does the ability of suppliers of corporate debt capital to hedge risk through credit default swap (CDS) contracts impact firms' capital structures? 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, as would be expected if the ability to hedge helps alleviate frictions on the supply side of credit markets.
Keywords: capital structure, supply frictions, credit default swaps
JEL Classification: G32
Suggested Citation: Suggested Citation