Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180061
Authors: 
Colonnello, Stefano
Efing, Matthias
Zucchi, Francesca
Year of Publication: 
2018
Series/Report no.: 
IWH Discussion Papers 10/2016
Abstract: 
Credit default swaps (CDSs) can create empty creditors who potentially force borrowers into inefficient bankruptcy but also reduce shareholders' incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. Firms are more likely to have empty creditors if these would face powerful shareholders in debt renegotiation. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative.
Subjects: 
empty creditors
credit default swaps
bargaining power
real effects
JEL: 
G32
G33
G34
Document Type: 
Working Paper

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