The Impact of Joint Participation on Liquidity in Equity and Syndicated Bank Loan Markets

55 Pages Posted: 27 Mar 2008 Last revised: 4 Sep 2019

See all articles by Linda Allen

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Aron A. Gottesman

Pace University - Lubin School of Business - Department of Finance and Economics

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: February 13, 2011

Abstract

Market liquidity is impacted by the presence of financial intermediaries that are informed and active participants in both the equity and the syndicated bank loan markets, specifically informationally advantaged lead arrangers of syndicated bank loans that simultaneously act as equity market makers (dual market makers). Employing a two-stage procedure with instrumental variables, we identify the simultaneous equations model of liquidity and dual market maker decisions. We find that the presence of dual market makers improves the liquidity of the more competitive and transparent equity markets, but widens the spread in the less competitive over-the-counter loan market for small, informationally opaque firms.

Keywords: Syndicated Bank Loans, Joint Participation, Market Liquidity

JEL Classification: G14, G24

Suggested Citation

Allen, Linda and Gottesman, Aron A. and Peng, Lin, The Impact of Joint Participation on Liquidity in Equity and Syndicated Bank Loan Markets (February 13, 2011). Pace University Finance Research Paper No. 2008/02. Available at SSRN: https://ssrn.com/abstract=890149 or http://dx.doi.org/10.2139/ssrn.890149

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States
646-312-3463 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://stern.nyu.edu/~lallen

Aron A. Gottesman

Pace University - Lubin School of Business - Department of Finance and Economics ( email )

One Pace Plaza
New York, NY 10038
United States
212-346-1912 (Phone)
212-346-1573 (Fax)

Lin Peng (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

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