Securities Lending and Corporate Financing: Evidence from Bond Issuance
46 Pages Posted: 2 Oct 2020 Last revised: 22 Nov 2021
Date Written: September 20, 2018
The securities lending market allows institutional investors, such as insurance companies, to lend out asset holdings in exchange for cash collateral, an important but understudied source of funding. Since securities lenders are also primary investors in corporate bonds, we hypothesize that their lending preference for certain types of bonds can influence corporate financing policies. Indeed, we observe that a higher lender preference for long-term bonds stimulates firms to issue more such bonds and helps boost bond prices. The analysis exploiting a quasi-experiment supports a causal interpretation. Our results shed new light on the potential impact of securities lending.
Keywords: securities lending, institutional investors, cost of capital, bond issuance, bond pricing
JEL Classification: G12, G2, G3
Suggested Citation: Suggested Citation