Abstract
This study shows that credit default swap (CDS) reference firms are more likely to conduct acquisitions. In economic terms, CDS reference firms have a 5% higher acquisition propensity than non-CDS firms. Additionally, CDS reference acquirers experience higher announcement returns. This is driven by CDS reference acquirers with high credit risk, who are also associated with a lower probability of default. The positive effect of CDS on acquisition outcomes is attributable to the empty creditor threat posed by CDS-protected creditors. Finally, consistent with CDS increasing debt capacity, cash is more likely to be used as the payment method.