Credit Default Swaps and Corporate Debt Structure
49 Pages Posted: 12 May 2018
Date Written: April 28, 2018
Credit default swaps (CDSs) are bilateral contracts that contain private information about the underlying firm. CDS trading could reveal such information to the market, thereby altering firms’ financing choices. We find that firms use more public debt and less bank debt when there is CDS trading on their debt. The results are robust to the endogeneity of CDS trading. Furthermore, the effect of CDS trading is more pronounced for informationally opaque firms, suggesting that CDS trading improves the information environment. These findings suggest that the informational role of CDSs has real effects on corporate debt structure.
Keywords: Credit Default Swaps, Corporate Debt Structure, Information Environment
JEL Classification: G32
Suggested Citation: Suggested Citation