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

Regina Wittenberg-Moerman

Journal of Accounting and Economics, 2008, vol. 46, issue 2-3, 240-260

Abstract: I explore which firm and loan characteristics decrease or exacerbate information asymmetry in the trading of private debt. I find that loans of public firms, loans with an available credit rating, loans of profit firms and loans syndicated by more reputable arrangers are traded at lower bid-ask spreads, while revolvers, distressed loans and loans issued by institutional investors are associated with higher information costs. I also find that timely loss recognition reduces the bid-ask spread. This finding suggests that conservative reporting decreases information asymmetry regarding a borrower and increases the efficiency of the secondary trading of debt securities.

Keywords: Secondary; loan; trading; Information; asymmetry; Timely; loss; recognition; Accounting; conservatism (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (78)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:46:y:2008:i:2-3:p:240-260

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