Sustainability of Direct Lending: Evidence from Index Exclusion

54 Pages Posted: 22 Jan 2021

See all articles by Tetiana Davydiuk

Tetiana Davydiuk

Carnegie Mellon University - David A. Tepper School of Business

Tatyana Marchuk

BI Norwegian Business School

Samuel Rosen

Temple University, Fox School of Business

Date Written: November 12, 2020

Abstract

The 2006 change in the disclosure requirements for "Acquired Fund Fees and Expenses" (AFFE) led to the exclusion of business development companies (BDCs) from major stock indexes in 2014, constituting a contractionary shock to the flow of equity capital into publicly traded BDCs. In a difference-in-differences setting, we demonstrate that AFFEcted BDCs — those with high pre-shock mutual fund ownership — experience a 10%-14% larger drop in their equity growth and 12%-16% larger decline in investment growth relative to non-AFFEcted BDCs. These findings highlight the importance of access to capital markets for BDCs to sustain their investment activities. Exploiting the geographic dispersion of BDC borrowers, we further document the negative impact of the AFFE regulation on local employment growth.

Keywords: Business Development Companies, Direct Lending, AFFE, Index Exclusion

JEL Classification: G20, G23, G32

Suggested Citation

Davydiuk, Tetiana and Marchuk, Tatyana and Rosen, Samuel, Sustainability of Direct Lending: Evidence from Index Exclusion (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3729530 or http://dx.doi.org/10.2139/ssrn.3729530

Tetiana Davydiuk

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Tatyana Marchuk (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Samuel Rosen

Temple University, Fox School of Business ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

HOME PAGE: http://sites.google.com/view/samuel-rosen/

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