Creditor Control Rights and the Non-Synchronicity of Global CDS Markets

We analyze how creditor rights affect the nonsynchronicity of global corporate credit default swap spreads (CDS-NS). We find that CDS-NS is negatively related to the country-level creditor-control rights, especially to the “restrictions on reorganization” component, where creditor-shareholder conflicts are high. The negative effect is concentrated in firms with high levels of risk, investment intensity, asset growth, and information opacity. A difference-in-differences analysis shows that pro-creditor bankruptcy reforms lead to a substantial decline in CDS-NS, indicating a net reduction in the firm-specific idiosyncratic information priced in credit markets. Our findings suggest that a strategic-disclosure incentive among debtors to avoid creditor intervention is more dominant than the disciplining effect. Our study sheds light on how strengthening creditor rights affects an intricate process of power rebalancing between creditors and shareholders