Abstract

https://ssrn.com/abstract=2126131
 
 

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Does the Secondary Loan Market Reduce Borrowing Costs?


Mark J. Kamstra


York University - Schulich School of Business

Gordon S. Roberts


York University - Schulich School of Business

Pei Shao


University of Lethbridge

April 7, 2012

Forthcoming in the Review of Finance

Abstract:     
We show that lenders make price concessions for the right to resell loans, and reveal a strong countervailing association between the ex ante probability of loan resale and the initial loan spreads. We disentangle the side effects (reduced monitoring) from the benefits (enhanced liquidity) brought by the secondary loan resales. The average net impact of simultaneously reducing the probability of the presence of resale constraint and raising the probability of resale across the full sample is to lower spreads by 14 basis points. On balance, the secondary loan market provides clear benefits to issuers of debt.

Number of Pages in PDF File: 57

Keywords: Secondary loan pricing, banking, financial institutions

JEL Classification: G32


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Date posted: August 8, 2012 ; Last revised: February 28, 2013

Suggested Citation

Kamstra, Mark J. and Roberts, Gordon S. and Shao, Pei, Does the Secondary Loan Market Reduce Borrowing Costs? (April 7, 2012). Forthcoming in the Review of Finance. Available at SSRN: https://ssrn.com/abstract=2126131 or http://dx.doi.org/10.2139/ssrn.2126131

Contact Information

Mark J. Kamstra
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
Gordon S. Roberts (Contact Author)
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 x77953 (Phone)
416-736-5687 (Fax)
Pei Shao
University of Lethbridge ( email )
4401 University Drive
Lethbridge, Alberta T1K 3M4
Canada
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