Photo from wikipedia
This study shows that initiation of credit default swap (CDS) trading for an entity's debt increases the share of loans retained by loan syndicate lead arrangers and increases loan spread.… Click to show full abstract
This study shows that initiation of credit default swap (CDS) trading for an entity's debt increases the share of loans retained by loan syndicate lead arrangers and increases loan spread. These findings are consistent with CDS initiation reducing the effectiveness of a lead arranger's stake in the loan to serve as a mechanism to address the adverse selection and moral hazard problems in the loan syndicate. Additional findings corroborate this interpretation by revealing a moderating effect for firms with greater transparency, for loans originated by a lead arranger with a strong reputation in this market, and for firms with relatively illiquid CDS markets.
Journal Title: Journal of Financial Economics
Year Published: 2017
Link to full text (if available)
Share on Social Media: Sign Up to like & get
recommendations!