45 Pages Posted: 20 Apr 2017 Last revised: 16 Jul 2017
Date Written: April 18, 2017
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: 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