Abstract
We examine the effect of credit default swap (CDS) trading on firm investment, finding a post-CDS introduction decrease in debt issuance and acquisitions, which remains robust to propensity score matching, instrumenting CDS introduction, and controlling for past investment and financing activities. Further analysis reveals a CDS introduction-year increase in debt financing and acquisitions, for which we could not eliminate reverse causality as a potential explanation. Overall, the ex post increase in bankruptcy risk and debt overhang likely plays a dominant role in the investment effect of CDS, while the expansion in credit supply due to a reduction of strategic default or regulatory capital requirement appears less important.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
