Securities Lending and Corporate Financing: Evidence from Bond Issuance

36 Pages Posted: 2 Oct 2020

See all articles by Jennie Bai

Jennie Bai

Georgetown University - Department of Finance; National Bureau of Economic Research (NBER)

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Date Written: September 20, 2018


The security lending market allows institutional investors, such as insurance companies, to lend out their holding assets in exchange for cash collateral, an important but understudied source of funding to conduct off-balance sheet transactions. Since these lenders are also primary investors of corporate bonds, we hypothesize that their lending preference on certain types of bonds can influence corporate financing policies. Indeed, we observe that lenders’ preference for long-term bonds stimulates firms to issue more such bonds and helps boost bond prices. Analysis exploiting a quasi-experiment on the regulatory change of insurance companies in 2010 supports a causal interpretation. Our results shed new insight on the potential impact of security lending on corporate financing policies and bond pricing.

Keywords: securities lending, institutional investors, cost of capital, bond issuance, bond pricing

JEL Classification: G12, G2, G3

Suggested Citation

Bai, Jennie and Massa, Massimo and Zhang, Hong, Securities Lending and Corporate Financing: Evidence from Bond Issuance (September 20, 2018). Georgetown McDonough School of Business Research Paper No. 3695947, PBCSF-NIFR Research Paper, Available at SSRN: or

Jennie Bai (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States


National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083


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