Secondary Market Trading and the Cost of New Debt Issuance

45 Pages Posted: 20 Apr 2017  

Ryan L. Davis

University of Alabama at Birmingham

David A. Maslar

University of Tennessee, Knoxville - Haslam College of Business

Brian S. Roseman

California State University, Fullerton

Date Written: April 18, 2017

Abstract

We show that secondary market activity impacts the cost of issuing new debt in the primary market. Specifically, firms with existing illiquid debt are less likely to issue new debt within a given year, and when they do issue new debt, face higher borrowing costs. We also find that with the improvement in the price discovery process brought about by the introduction of TRACE reporting, firms that became TRACE listed subsequently had a lower cost of debt. Our results indicate that the secondary market functions of liquidity and price discovery are important to the primary market. Overall, the results presented in this paper provide a greater understanding of the connection between the secondary market and the real economy.

Keywords: cost of debt, corporate bonds, illiquidity

JEL Classification: G10, G12, G14,

Suggested Citation

Davis, Ryan L. and Maslar, David A. and Roseman, Brian S., Secondary Market Trading and the Cost of New Debt Issuance (April 18, 2017). Available at SSRN: https://ssrn.com/abstract=2954857

Ryan L. Davis

University of Alabama at Birmingham ( email )

Birmingham, AL 35294
United States

David A. Maslar (Contact Author)

University of Tennessee, Knoxville - Haslam College of Business ( email )

Haslam Business Building
Knoxville, TN
United States

Brian S. Roseman

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92834
United States

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