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Credit default swaps around the world

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  • Bartram, Söhnke
  • Conrad, Jennifer
  • Lee, Jongsub
  • Subrahmanyam, Marti

Abstract

We analyze the impact of the introduction of credit default swaps (CDS) on real decision making within the firm. Our structural model predicts that CDS introduction increases debt capacity more when uncertainty about the credit events that trigger CDS payment is lower. Using a sample of more than 56,000 firms across 51 countries, we find that CDS increase leverage more in legal and market environments where uncertainty regarding CDS obligations is reduced and when property rights are weaker. Our results highlight the importance of legal uncertainty surrounding the interpretation of the underlying trigger events of global credit derivatives.

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  • Bartram, Söhnke & Conrad, Jennifer & Lee, Jongsub & Subrahmanyam, Marti, 2021. "Credit default swaps around the world," CEPR Discussion Papers 15668, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15668
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    Cited by:

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    3. Canta, Chiara & Nilsen, Øivind A. & Ulsaker, Simen A., 2023. "Competition and risk taking in local bank markets: Evidence from the business loans segment," Journal of Empirical Finance, Elsevier, vol. 73(C), pages 153-169.
    4. Clark, Brian & Donato, James & Francis, Bill B., 2023. "Credit default swaps and debt specialization," Journal of Financial Intermediation, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Credit default swaps; Cds; Investment policy; Financing policy; Creditor rights; Property rights; Ownership concentration;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F3 - International Economics - - International Finance

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