Date Added: Nov 2010
Does the ability of suppliers of debt to hedge risk through Credit Default Swap (CDS) contracts impact firms' capital structures? This paper uses CDS markets as a proxy for a relaxation of firms' credit supply constraints and tests whether supply frictions impact capital structure and debt maturity. The authors 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.