Credit Default Swaps and Corporate Debt Structure
48 Pages Posted: 12 May 2018 Last revised: 24 Aug 2021
Date Written: August 23, 2021
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