Date of Degree

9-2019

Document Type

Dissertation

Degree Name

Ph.D.

Program

Business

Advisor

Monica Neamtiu

Committee Members

Rong Huang

Seil Kim

Armen Hovakimian

Subject Categories

Accounting

Keywords

CDS, Peer Effects, Bond Pricing

Abstract

This paper documents externalities associated with the introduction of credit default swaps (CDS) in the corporate bond market. I find that firms without traded CDS contracts (non-CDS firms) experience lower cost of debt when there are more peer firms with traded CDS contracts (CDS firms). This effect is stronger when non-CDS firms are more closely related to a CDS-firm and when the outstanding CDS contracts are more liquid. My findings are consistent with the view that CDS trading provides hedging opportunities and information for bond investors of non-CDS firms. This study provides evidence that CDS trading on peer firms has positive externalities on the cost of public debt for non-CDS firms.

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