Do Empty Creditors Matter? Evidence from Distressed Exchange Offers

Andras Danis

No 1334, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: I examine the effect of credit default swaps (CDSs) on the restructuring of distressed firms. Theoretically, I show that if bondholders are insured with CDSs, the participation rate in a restructuring decreases. Using a sample of distressed exchange offers, I estimate that the participation rate is 29% lower if the firm has CDSs traded on its debt, compared to an unconditional mean of 54%. I use the introduction of the Big Bang protocol as a natural experiment. The results suggest that firms with CDSs find it difficult to reduce debt out-of-court, which is inefficient because it increases the likelihood of future bankruptcy.

Keywords: credit default swaps; CDS; empty creditor; restructuring; bankruptcy (search for similar items in EconPapers)
JEL-codes: G33 G34 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2013-10
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Do Empty Creditors Matter? Evidence from Distressed Exchange Offers (2017)
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