Secondary Market Transparency and Corporate Bond Issuing Costs

Asset pricing and the bid–ask spread

James Brugler, Carole Comerton-Forde and J Spencer Martin

Review of Finance, 2022, vol. 26, issue 1, 43-77

Abstract: Mandated post-trade transparency in secondary markets lowers the cost of issuing corporate bonds. We show that costs are lower due to the mitigation of information asymmetry in the issuing process. Three pieces of evidence support this finding. First, new issues with higher information asymmetry experience relatively larger reductions in issuing costs. These bonds also experience lower reductions in trading activity than lower information asymmetry bonds, so liquidity cannot explain these results. Second, when a larger fraction of trades in comparable bonds are made post-trade transparent, new issue pricing improves. This holds when conditioning on expected bond liquidity. Third, transparency raises prices in the secondary market, but not by as much as it does for newly issued bonds.

Keywords: Corporate bonds; Capital costs; Market transparency (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G18 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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