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| Creditors are increasingly transferring debt cash flow rights to other market participants while retaining control rights. We use the market for credit default swaps (CDSs) as a laboratory to show that such debt decoupling causes large adverse effects on firms whose shareholders have high bargaining power. After the start of CDS trading the distance-to-default investment and market value of firms with powerful shareholders drop by 7.9% 7% and 8.8% compared to other firms. These findings are consistent with an "empty creditor problem" where creditors overinsure to strengthen their position in negotiations with powerful shareholders. |
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