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Credit default swaps and market information

Hiroshi Osano

Journal of Financial Markets, 2020, vol. 48, issue C

Abstract: In this paper, I theoretically explore the effects of the interaction between the information transmission role and the empty creditor problem of credit default swaps (CDSs) under debt rollover. Contrary to the empty creditor argument, the introduction of CDS protection increases the possibility of out-of-court restructuring if the liquidation value is not sufficiently large. However, when it is large, the introduction of CDS protection increases the possibility of firm bankruptcy. In addition, the introduction of CDS markets impairs the efficiency of debt financing under certain conditions, particularly if the liquidation value is not sufficiently large.

Keywords: Credit default swaps; Debt contract; Empty creditor; Liquidity; Transparency (search for similar items in EconPapers)
JEL-codes: D86 G14 G33 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:48:y:2020:i:c:s138641811830257x

DOI: 10.1016/j.finmar.2019.06.001

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Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

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