Secondary Market Transparency and Corporate Bond Issuing Costs

59 Pages Posted: 1 Dec 2016 Last revised: 25 Jun 2021

See all articles by James Brugler

James Brugler

University of Melbourne - Department of Finance

Carole Comerton-Forde

UNSW Business School; Financial Research Network (FIRN)

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Date Written: June 25, 2021

Abstract

Mandated post-trade transparency in secondary markets lowers the cost of issuing corporate bonds. We show that costs are lower due to the mitigation of information asymmetry in the issuing process. Three pieces of evidence support this finding. First, new issues with higher information asymmetry experience relatively larger reductions in issuing costs. These bonds also experience lower reductions in trading activity than lower information asymmetry bonds, so liquidity cannot explain these results. Second, when a larger fraction of trades in comparable bonds are made post-trade transparent, new issue pricing improves. This holds when conditioning on expected bond liquidity. Third, transparency raises prices in the secondary market, but not by as much as it does for newly issued bonds.

Keywords: corporate bonds, capital costs, market transparency

JEL Classification: G11, G12, G14, G18

Suggested Citation

Brugler, James and Comerton-Forde, Carole and Martin, J. Spencer, Secondary Market Transparency and Corporate Bond Issuing Costs (June 25, 2021). Available at SSRN: https://ssrn.com/abstract=2875165 or http://dx.doi.org/10.2139/ssrn.2875165

James Brugler (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia

Carole Comerton-Forde

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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