Risk Mitigation by Institutional Participants in the Secondary Market: Evidence from Foreign Rule 144A Debt Market

51 Pages Posted: 23 Apr 2019

See all articles by Alan Guoming Huang

Alan Guoming Huang

University of Waterloo

Madhu Kalimipalli

Lazaridis School of Business and Economics, Wilfrid Laurier University

Subhankar Nayak

Wilfrid Laurier University - Financial Services Research Centre

Latha Ramchand

University of Houston

Date Written: December 10, 2018

Abstract

We study secondary market trades of debt issues by foreign firms in the U.S. under SEC Rule 144A, a unique market where the counterparties are qualified institutional buyers (QIBs). We find that even though the secondary yield spreads of foreign 144A debt issues are larger than comparable public debt issues by foreign and domestic firms in the U.S., the incremental impact of common risks – namely, credit, illiquidity, governance, and familiarity risks – on spreads are lower for foreign 144A issues compared to various control samples. Our finding is consistent with the notion that institutional participants, namely QIBs, play a specialized role in mitigating risk exposures in the foreign 144A secondary market.

Keywords: foreign debt markets, 144A bonds, secondary bond market spreads, QIBs, risk exposure

JEL Classification: G10, G14, G15, G30

Suggested Citation

Huang, Alan G. and Kalimipalli, Madhu and Nayak, Subhankar and Ramchand, Latha, Risk Mitigation by Institutional Participants in the Secondary Market: Evidence from Foreign Rule 144A Debt Market (December 10, 2018). Journal of Banking and Finance, Vol. 99, 2019. Available at SSRN: https://ssrn.com/abstract=2298671 or http://dx.doi.org/10.2139/ssrn.2298671

Alan G. Huang

University of Waterloo ( email )

School of Accounting and Finance
Waterloo, Ontario N2L 3G1
Canada
519-888 4567 ext. 36770 (Phone)

Madhu Kalimipalli (Contact Author)

Lazaridis School of Business and Economics, Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada
519-884-0710 (Phone)

HOME PAGE: http://www.madhukalimipalli.com/

Subhankar Nayak

Wilfrid Laurier University - Financial Services Research Centre ( email )

Waterloo, Ontario N2L 3C5
Canada

Latha Ramchand

University of Houston ( email )

Houston, TX 77204
United States
713-743-4769 (Phone)

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