The Impact of CDS trading on the US Corporate Bond Market of the Semiconductor Industry

This article investigates the impact of Credit Default Swap(CDS) trading on the US corporate bond market of the semiconductor industry. There have been widespread claims that CDS have lowered the cost of firm’s debt financing by offering new hedging channels and information to investors. However, there are also some claims that CDS have reduced the lenders’ incentives to monitor the borrowers. Our empirical results says that there is an insignificant impact of CDS trading on the bond spread. However, we do find statistically significant effects of firm size, firm leverage, bond issue amount, maturity date, use of collateral, and rating on the bond spread. Nevertheless, date of issuance has an insignificant effect of the bond spread, even during the phase of the global financial crisis.