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Risk mitigation by institutional participants in the secondary market: Evidence from foreign Rule 144A debt market

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  • Huang, Alan G.
  • Kalimipalli, Madhu
  • Nayak, Subhankar
  • Ramchand, Latha

Abstract

We study secondary market trades of debt issues by foreign firms in the U.S. under SEC Rule 144A, a unique market where the counterparties are qualified institutional buyers (QIBs). We find that even though the secondary yield spreads of foreign 144A debt issues are larger than comparable public debt issues by foreign and domestic firms in the U.S., the incremental impact of common risks – namely, credit, illiquidity, governance, and familiarity risks – on spreads are lower for foreign 144A issues compared to various control samples. Our finding is consistent with the notion that institutional participants, namely QIBs, play a specialized role in mitigating risk exposures in the foreign 144A secondary market.

Suggested Citation

  • Huang, Alan G. & Kalimipalli, Madhu & Nayak, Subhankar & Ramchand, Latha, 2019. "Risk mitigation by institutional participants in the secondary market: Evidence from foreign Rule 144A debt market," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 202-221.
    • Handle: RePEc:eee:jbfina:v:99:y:2019:i:c:p:202-221
    DOI: 10.1016/j.jbankfin.2018.12.011
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    Cited by:

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    2. Li, Yingqi & Mittoo, Usha R. & Yu, Xin & Zhang, Zhou, 2021. "The impact of global financial crisis on regulation S private debt market," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 231-248.
    3. Piotr Rubaj, 2021. "Risk Mitigation in Business Activities on Emerging Markets," European Research Studies Journal, European Research Studies Journal, vol. 0(4B), pages 699-712.
    4. Dodd, Olga & Kalimipalli, Madhu & Chan, Wing, 2021. "Evaluating corporate credit risks in emerging markets," International Review of Financial Analysis, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Foreign debt markets; 144A bonds; Secondary bond market spreads; QIBs; Risk exposure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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