Securities Lending and Corporate Financing: Evidence from Bond Issuance

46 Pages Posted: 2 Oct 2020 Last revised: 22 Nov 2021

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

Abstract

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

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: https://ssrn.com/abstract=3695947 or http://dx.doi.org/10.2139/ssrn.3695947

Jennie Bai (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States

HOME PAGE: http://www.jenniebai.com

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
France
+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
China

HOME PAGE: http://www.hongzhang.info

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