Credit Default Swaps and Corporate Debt Structure
52 Pages Posted: 12 May 2018 Last revised: 12 Aug 2020
Date Written: August 12, 2020
Credit default swaps (CDSs) are an effective tool to trade credit risk, and they can improve the corporate information environment. 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: Suggested Citation