The role of information asymmetry and financial reporting quality in debt contracting: evidence from the secondary loan market

Regina Wittenberg-Moerman

No 1031, Proceedings from Federal Reserve Bank of Chicago

Abstract: I employ unique data on secondary loan trades to explore how information asymmetry and the quality of financial reporting affect the trading spreads of private debt securities. There are two primary findings. First, the bid-ask spread in secondary loan trading is positively related to firm and loan-specific characteristics associated with a high information asymmetry environment. Loans of private firms, loans without an available credit rating, loans syndicated by less reputable arrangers, distressed loans, and loans of loss firms are traded at significantly higher bid-ask spreads. Second, timely incorporation of economic losses into borrowers? financial statements reduces the bid-ask spread at which their loans are traded. This finding suggests that high quality financial reporting reduces the information costs associated with debt agreements and increases the efficiency of the secondary trade.

Keywords: Loans; Credit ratings (search for similar items in EconPapers)
Pages: 386-411
Date: 2006
References: Add references at CitEc
Citations:

Published in Conference on Bank Structure and Competition (2006: 42nd) ; Innovations in real estate markets : risk, rewards, and the role of regulation

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhpr:1031

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Proceedings from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese ().