Has the CDS Market Lowered the Cost of Corporate Debt?

44 Pages Posted: 21 Jun 2007 Last revised: 22 Jun 2016

See all articles by Adam B. Ashcraft

Adam B. Ashcraft

Federal Reserve Bank of New York

João A. C. Santos

Federal Reserve Bank of New York; New University of Lisbon - Nova School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2009

Abstract

Many have claimed that credit default swaps (CDSs) have lowered the cost of debt financing to firms by creating new hedging opportunities and information for investors. This paper evaluates the impact that the onset of CDS trading has on the spreads that underlying firms pay to raise funding in the corporate bond and syndicated loan markets. Employing a range of methodologies, we fail to find evidence that the onset of CDS trading lowers the cost of debt financing for the average borrower. Further, we uncover economically significant adverse effects on risky and informationally opaque firms.

Keywords: Credit default swaps, loan spreads, credit spreads.

JEL Classification: G24, G32.

Suggested Citation

Ashcraft, Adam B. and Santos, João A. C., Has the CDS Market Lowered the Cost of Corporate Debt? (2009). Available at SSRN: https://ssrn.com/abstract=995728 or http://dx.doi.org/10.2139/ssrn.995728

Adam B. Ashcraft

Federal Reserve Bank of New York ( email )

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João A. C. Santos (Contact Author)

Federal Reserve Bank of New York ( email )

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New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)

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New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

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