This paper investigate the impact of Credit Default Swaps (CDSs) trading on the cost of bank loan during 2001 to 2012. Theoretically, the CDS trading have lowered the cost of bank loan to firms by creating risk sharing opportunities and reducing bank monitoring and information cost. However, as a whole, we only find limited evidence that the CDS trading have lowered the cost of bank loan but the impact is stronger for smaller firms, those firms with higher liquidity in the CDS market, and bank loan market in Asia. Nevertheless, there is strong evidence, during the recent financial crisis period, those firms with CDS trading faced higher bank loan spread than those not with CDS trading.
- Credit Default Swaps
- Loan Spread