Secondary Market Frictions and Real Firm Activity

56 Pages Posted: 20 Apr 2017 Last revised: 6 Jan 2020

See all articles by Ryan Davis

Ryan Davis

University of Alabama at Birmingham

David A. Maslar

University of Tennessee, Knoxville - Department of Finance; University of Tennessee, Knoxville - College of Business Administration

Brian Roseman

Oklahoma State University - Department of Finance

Date Written: Dec 15, 2019

Abstract

This article shows that secondary market structure and trading activity impact real firm activity. Using the staggered implementation of TRACE, we show that market transparency improvements lead to increased investment and show that greater illiquidity is associated with lower levels of investment. We also document two channels through which secondary markets impact real firm activity, access to and cost of capital. Specifically, we show that TRACE listing increases public bond issuance, decreases bank borrowing and equity issuances, and that higher illiquidity raises borrowing costs. Collectively, our findings provide a direct link between secondary market activity and the real economy.

Keywords: Debt Issuance, Liquidity, Price Discovery, Market Frictions, Market Microstructure, Real Effects, Investment

JEL Classification: G10, G12, G14, G32

Suggested Citation

Davis, Ryan and Maslar, David A. and Roseman, Brian, Secondary Market Frictions and Real Firm Activity (Dec 15, 2019). Available at SSRN: https://ssrn.com/abstract=2954857 or http://dx.doi.org/10.2139/ssrn.2954857

Ryan Davis

University of Alabama at Birmingham ( email )

Birmingham, AL 35294
United States

David A. Maslar (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States

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

453 Haslam Business Building
Knoxville, TN 37996
United States

Brian Roseman

Oklahoma State University - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078
United States

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