Credit Default Swaps and Corporate Debt Structure

48 Pages Posted: 12 May 2018 Last revised: 24 Aug 2021

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

Chenyu Shan

Shanghai University of Finance and Economics

Sarah Qian Wang

University of Warwick - Warwick Business School

Date Written: August 23, 2021

Abstract

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

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

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Walid Saffar (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

Chenyu Shan

Shanghai University of Finance and Economics ( email )

100 Wudong Road
Shanghai
China

Sarah Qian Wang

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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