Private Information Disclosure in the Secondary Loan Market and its Impact on Equity Market Trading Costs

70 Pages Posted: 23 Dec 2022

See all articles by Anthony Saunders

Anthony Saunders

New York University (NYU) - New York University

Pei Shao

Dhillon School of Business, University of Lethbridge

Yuchao Xiao

Deakin Business School, Deakin University

Abstract

When a firm’s loans are first traded in the secondary market, private information about the firm is disclosed to a select group of large investors, so called “Qualified Institutional Buyers” (QIBs). We document a significant information effect that benefits these buyers in the firm’s market for equity, in particular, a significant impact on equity market investors and the firm’s stock bid-ask spreads, which benefits informed QIBs relative to retail investors. This informational benefit gives rise to important regulatory issues relating to disclosure and SEC regulation.

Keywords: Secondary loan market, Stock bid-ask spread, Institutional investors, Information asymmetry, Insider trading

Suggested Citation

Saunders, Anthony and Shao, Pei and Xiao, Yuchao, Private Information Disclosure in the Secondary Loan Market and its Impact on Equity Market Trading Costs. Available at SSRN: https://ssrn.com/abstract=4310591 or http://dx.doi.org/10.2139/ssrn.4310591

Anthony Saunders

New York University (NYU) - New York University ( email )

Pei Shao (Contact Author)

Dhillon School of Business, University of Lethbridge ( email )

345 6 Ave SE
Calgary, Alberta T2G 4V1
Canada
+14033801845 (Phone)
T2G 4V1 (Fax)

Yuchao Xiao

Deakin Business School, Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

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