Credit default swaps drive corporate acquisitions, boosting financial returns and debt capacity.
Credit default swap (CDS) reference firms are more likely to buy other companies. CDS reference firms have a 5% higher chance of making acquisitions than non-CDS firms. When CDS reference firms buy companies, they make more money. This is especially true for CDS reference firms with high credit risk. These firms are less likely to go bankrupt. CDS-protected creditors make it more likely for companies to buy other companies. Companies that use CDS are more likely to pay for acquisitions with cash.