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Credit default swaps around the world

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Bartram, Söhnke M., Conrad, Jennifer, Lee, Jongsub and Subrahmanyam, Marti G. (2021) Credit default swaps around the world. Review of Financial Studies . hhab092. doi:10.1093/rfs/hhab092 (In Press)

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Official URL: https://doi.org/10.1093/rfs/hhab092

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Abstract

We analyze the impact of the introduction of credit default swaps (CDSs) 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 CDSs increase leverage more in legal and market environments where uncertainty about CDS obligations is reduced and when property rights are weaker. Our results highlight the importance of legal uncertainty in the interpretation of the underlying trigger events of global credit derivatives.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Derivative securities, Swaps (Finance), Right of property, Credit derivatives, Uncertainty
Journal or Publication Title: Review of Financial Studies
Publisher: Oxford University Press
ISSN: 0893-9454
Official Date: 2021
Dates:
DateEvent
2021Published
24 August 2021Available
11 March 2021Accepted
Article Number: hhab092
DOI: 10.1093/rfs/hhab092
Status: Peer Reviewed
Publication Status: In Press
Publisher Statement: This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Financial Studies following peer review. The version of record [insert complete citation information here] is available online at: xxxxxxx [insert URL and DOI of the article on the OUP website].
Access rights to Published version: Open Access
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