Information Asymmetry and the Pricing of Privately Placed Debt
26 Pages Posted: 2 Feb 2021 Last revised: 10 Mar 2021
Date Written: January 19, 2021
Based on a dataset including 11,636 private debt placements issued globally between 1999 and 2016, we investigate the association between borrower-lender information asymmetry and the cost of debt for issuers. We observe that information asymmetry due to being a private or unrated firm is associated with higher cost of private debt. Our results equally inform corporate financing decisions and government initiatives aimed at promoting private debt markets in order to expand funding sources for the private sector.
Keywords: Private placement, cost of debt, information asymmetry, corporate structure
JEL Classification: G30, G32, G38
Suggested Citation: Suggested Citation