Corporate Leverage, Debt Maturity and Credit Supply: The Role of Credit Default Swaps

74 Pages Posted: 8 Mar 2011 Last revised: 17 Aug 2015

See all articles by Alessio Saretto

Alessio Saretto

Federal Reserve Banks - Federal Reserve Bank of Dallas

Heather Tookes

Yale University - Yale School of Management; Yale University - International Center for Finance

Date Written: October 17, 2012

Abstract

Does the ability of suppliers of corporate debt capital to hedge risk through credit default swap (CDS) contracts impact firms' capital structures? We find that firms with traded CDS contracts on their debt are able to maintain higher leverage ratios and longer debt maturities. This is especially true during periods in which credit constraints become binding, as would be expected if the ability to hedge helps alleviate frictions on the supply side of credit markets.

Keywords: capital structure, supply frictions, credit default swaps

JEL Classification: G32

Suggested Citation

Saretto, Alessio and Tookes, Heather, Corporate Leverage, Debt Maturity and Credit Supply: The Role of Credit Default Swaps (October 17, 2012). Available at SSRN: https://ssrn.com/abstract=1780426 or http://dx.doi.org/10.2139/ssrn.1780426

Alessio Saretto

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Heather Tookes (Contact Author)

Yale University - Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

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