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Credit default swaps and firms' financing policies

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  • Fuller, Kathleen P.
  • Yildiz, Serhat
  • Uymaz, Yurtsev

Abstract

This paper examines the impact of credit default swaps (CDS) on firms' financing and trade credit policies. Our results indicate firms with CDS trading on their debt increase their equity issuances. Further, firms with CDS trading on their debt and high levels of long-term debt issuances decrease their debt financing. Total and idiosyncratic risks are also higher for firms with CDS trading on their debt. These firms pay their suppliers and collect from their customers quicker. Thus, the impacts of the CDS market are not limited to the borrowing firms but also affect economically connected firms.

Suggested Citation

  • Fuller, Kathleen P. & Yildiz, Serhat & Uymaz, Yurtsev, 2018. "Credit default swaps and firms' financing policies," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 34-48.
    • Handle: RePEc:eee:corfin:v:48:y:2018:i:c:p:34-48
    DOI: 10.1016/j.jcorpfin.2017.10.004
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    2. Gan, Liu & Yang, Zhaojun, 2024. "Financial decisions involving credit default swaps over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 161(C).

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    More about this item

    Keywords

    Credit default swaps; Capital structure; Trade credit;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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