Debt Specialization and Credit Default Swaps

We examine the effect of credit default swaps (CDS) trading on debt specialization. We argue that reference firms in CDS contracts exhibit higher debt concentration in comparison to firms that do not have CDS traded on them as a way to minimize creditor conflicts and costs in bankruptcy. Our results show that firms have greater debt specialization as well as a higher probability of specializing after the inception of CDS trading. Additionally, the number of bank lenders decreases while lender concentration increases, lead arranger share increases, and the probability of repeat lead arrangers and repeat lenders increases following the onset of CDS trading. Our results are robust to instrument variable estimation, propensity score matching, different model specifications, and varying sub-samples