Credit default swaps and corporate debt structure

Yangyang Chen; Walid Saffar; Chenyu Shan; Sarah Qian Wang

doi:10.1016/j.jcorpfin.2023.102494

Journal of Corporate Finance Vol. 83 2023

Credit default swaps and corporate debt structure

Yangyang Chen¹; Walid Saffar²; Chenyu Shan³; Sarah Qian Wang⁴

¹ City University of Hong Kong · ² Hong Kong Polytechnic University · ³ Shanghai University of Finance and Economics · ⁴ University of Warwick

Abstract

Whether and how credit default swaps (CDSs) affect corporate debt structure remains an unanswered question. We find that firms use more public debt relative to bank debt when CDSs referencing 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.

DOI: 10.1016/j.jcorpfin.2023.102494
Volume: 83
Pages: 102494
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Credit default swaps and corporate debt structure

Abstract

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