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Credit default swaps and debt specialization

Author

Listed:
  • Clark, Brian
  • Donato, James
  • Francis, Bill B.

Abstract

We examine the effect of credit default swaps (CDSs) on debt specialization. We argue that reference firms in CDS contracts, seeking to minimize creditor conflicts and bankruptcy costs, exhibit higher debt concentration than firms on which no CDSs are traded. Our results show that firms engage in greater debt specialization and are more likely to specialize following the inception of CDS trading. Additionally, we find that, while lender concentration in firms increases, the number of bank lenders drops, lead arranger share rises, and the probability that lead arrangers and lenders are repeated increases following the onset of CDS trading. Our results are robust to instrumental variable estimation, propensity-score matching, different model specifications, and different subsamples.

Suggested Citation

  • Clark, Brian & Donato, James & Francis, Bill B., 2023. "Credit default swaps and debt specialization," Journal of Financial Intermediation, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:jfinin:v:54:y:2023:i:c:s1042957323000128
    DOI: 10.1016/j.jfi.2023.101029
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit default swaps; Bank loans; Debt structure; Capital structure;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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