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Credit default swaps and market information

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  • Osano, Hiroshi

Abstract

In this paper, I theoretically explore the effects of the interaction between the information transmission role and the empty creditor problem of credit default swaps (CDSs) under debt rollover. Contrary to the empty creditor argument, the introduction of CDS protection increases the possibility of out-of-court restructuring if the liquidation value is not sufficiently large. However, when it is large, the introduction of CDS protection increases the possibility of firm bankruptcy. In addition, the introduction of CDS markets impairs the efficiency of debt financing under certain conditions, particularly if the liquidation value is not sufficiently large.

Suggested Citation

  • Osano, Hiroshi, 2020. "Credit default swaps and market information," Journal of Financial Markets, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:finmar:v:48:y:2020:i:c:s138641811830257x
    DOI: 10.1016/j.finmar.2019.06.001
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    More about this item

    Keywords

    Credit default swaps; Debt contract; Empty creditor; Liquidity; Transparency;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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