We test the theoretical equivalence of credit default swap (CDS) prices and credit spreads derived by Duffie (1999) , finding support for the parity relation as an equilibrium condition. We also find two forms of deviation from parity. First, for three firms, CDS prices are substantially higher than credit spreads for long periods of time, arising from combinations of imperfections in the contract specification of CDSs and measurement errors in computing the credit spread. Second, we find short‐lived deviations from parity for all other companies due to a lead for CDS prices over credit spreads in the price discovery process.

Before the Covid-19 crisis, zero-bank-debt firms, especially risky ones, faced, due to their lack of credit history, more difficult access to bank loans than firms which previously had bank debt. These credit constraints were tightened by the Covid shock, irrespective of firms’ risk, arguably because of increased information asymmetries during a period of high macroeconomic uncertainty. Zero-bank-debt firms, even those which were safe and profitable, were also far more likely to leave the market during the pandemic than firms which previously had bank debt. However, those zero-bank-debt firms that did obtain new credit reduced their probability of exit.