Does the Secondary Loan Market Reduce Borrowing Costs?

Forthcoming in the Review of Finance

57 Pages Posted: 8 Aug 2012 Last revised: 28 Feb 2013

Mark J. Kamstra

York University - Schulich School of Business; Rady School of Management

Gordon S. Roberts

York University - Schulich School of Business

Pei Shao

University of Lethbridge

Date Written: April 7, 2012

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.

Keywords: Secondary loan pricing, banking, financial institutions

JEL Classification: G32

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

Mark J. Kamstra

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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

Paper statistics

Downloads
102
Rank
213,953
Abstract Views
527