Secondary Market Transparency and Corporate Bond Issuing Costs
59 Pages Posted: 1 Dec 2016 Last revised: 25 Jun 2021
Date Written: June 25, 2021
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: Suggested Citation