Credit Default Swaps and Corporate Debt Structure

49 Pages Posted: 12 May 2018

See all articles by Yangyang Chen

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business

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: April 28, 2018

Abstract

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

Chen, Yangyang and Saffar, Walid and Shan, Chenyu and Wang, Sarah Qian, Credit Default Swaps and Corporate Debt Structure (April 28, 2018). Available at SSRN: https://ssrn.com/abstract=3170485 or http://dx.doi.org/10.2139/ssrn.3170485

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
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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