Private information disclosure in the secondary loan market and its impact on equity market trading costs

Anthony Saunders, Pei Shao and Yuchao Xiao

Journal of Financial Markets, 2024, vol. 67, issue C

Abstract: When a firm's loans are first traded in the secondary market, private information about the firm is disclosed to a select group of large investors, so-called qualified institutional buyers (QIBs). We document a significant information effect that benefits these buyers in the firm's market for equity, in particular, a significant impact on equity market investors and the firm's stock bid-ask spreads, which benefits informed QIBs relative to retail investors. This informational benefit raises important regulatory issues related to disclosure and SEC regulations.

Keywords: Secondary loan market; Stock bid-ask spread; Institutional investors; Information asymmetry; Insider trading (search for similar items in EconPapers)
JEL-codes: D82 G14 G18 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:67:y:2024:i:c:s1386418123000654

DOI: 10.1016/j.finmar.2023.100867

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