Private Information Dissemination in the Secondary Loan Market: The Effect on Stock Bid-ask Spreads

2021 ◽  
Author(s):  
Anthony Saunders ◽  
Pei Shao ◽  
Yuchao Xiao
Keyword(s):  
Private Information ◽  
Information Dissemination ◽  
Loan Market ◽  
Bid Ask Spreads ◽  
Secondary Loan Market

Does Secondary Loan Market Trading Destroy Incentives?

2009 ◽  
Author(s):  
Robert M. Bushman ◽  
Regina Wittenberg Moerman
Keyword(s):  
Loan Market ◽  
Secondary Loan Market

Does the Secondary Loan Market Reduce Borrowing Costs?*

2013 ◽  
Vol 18 (3) ◽  
pp. 1139-1181 ◽  
Author(s):  
Mark J. Kamstra ◽  
Gordon S. Roberts ◽  
Pei Shao
Keyword(s):  
Borrowing Costs ◽  
Loan Market ◽  
Secondary Loan Market

Soft Information in Loan Agreements

2017 ◽  
Vol 33 (1) ◽  
pp. 40-71 ◽  
Author(s):  
Zahn Bozanic ◽  
Lin Cheng ◽  
Tzachi Zach
Keyword(s):  
Credit Risk ◽  
Soft Information ◽  
Risk Assessments ◽  
Uncertainty Measure ◽  
Performance Pricing ◽  
And Performance ◽  
Loan Spreads ◽  
Bid Ask Spreads ◽  
Private Loan ◽  
Secondary Loan Market

In this study, we seek to understand whether soft information conveyed by contracting language found in private loan agreements is informative regarding borrower risk. We proxy for credit-risk-relevant soft information using Loughran and McDonald’s uncertainty measure. We first examine initial contract terms and find that, incremental to traditional summary measures of credit risk, increased contractual uncertainty is associated with higher initial loan spreads and a greater likelihood of using dynamic and performance-pricing covenants. We then turn to examine realized credit risk over the life of the loan and find that increased uncertainty is associated with a higher likelihood of future loan downgrades and loan amendments. We corroborate our results on the risk relevance of soft information by showing that the bid-ask spreads of loans trading on the secondary loan market are increasing in uncertainty. Overall, the evidence we provide is consistent with embedded linguistic cues in loan agreements publicly revealing the credit risk assessments of privately informed lenders.

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