Credit Default Swaps and Corporate Cash Holdings∗
نویسندگان
چکیده
The introduction of credit default swaps (CDS) trading on an underlying firm may influence its future access to external financing and, hence, its precautionary demand for cash. In this paper, we empirically estimate this effect of CDS trading, using a comprehensive sample of North American corporate CDS introductions between 1997 and 2009. We show that corporate cash holdings, as a proportion of assets, increase after the inception of CDS trading. This impact is significant, even after controlling for the potential endogeneity of CDS trading. We also find that the increase in the cash-to-assets ratio is greater for firms with relatively large amounts of CDS contracts outstanding, and those with more limited access to financial markets. Moreover, the impact of CDS trading goes beyond the direct effects of bank lines of credit, which are generally less reliable sources of finance.
منابع مشابه
Center for Financial Studies
We examine the effects of credit default swaps (CDS), a major type of over-thecounter derivative, on the corporate liquidity management of the reference firms. CDS help firms to access the credit market since the lenders can hedge their credit risk more easily using these contracts. However, CDS-protected creditors can be tougher in debt renegotiations and less willing to support distressed bor...
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