Credit Risk and Governance: Evidence from Credit Default Swap Spreads

15 Pages Posted: 13 May 2022

Date Written: May 12, 2022


In this paper, we examine the effect of shareholder governance mechanisms on the firms' credit risk through credit default swap spreads. Our results suggest that higher antitakeover provisions decrease the price of debt. We find that on average, addition of one antitakeover provision lowers the CDS spread by 3.46 basis points. In addition, we find that this effect is more pronounced for smaller, highly levered, low-rated, and less profitable firms. Since these firms arguably carry a higher financial distress risk, it appears that bondholders favor weaker shareholder governance when the conflict of interest between the shareholders and the bondholders peak.

Keywords: Corporate Governance, Credit Risk, Credit Default Swap Spreads, Cost of Debt, G-Index.

JEL Classification: G30, G32, G34

Suggested Citation

Akdoğu, Evrim and Alp Paukowits, Aysun, Credit Risk and Governance: Evidence from Credit Default Swap Spreads (May 12, 2022). Finance Research Letters, Vol. 17, 2016, Available at SSRN:

Evrim Akdoğu

Sabanci University ( email )


Aysun Alp Paukowits (Contact Author)

University of Maryland ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

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