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.
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Volume (Year): 46 (2008) Issue (Month): 2-3 (December) Pages: 240-260 Download reference. The following formats are available: HTML
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