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The impact of joint participation on liquidity in equity and syndicated bank loan markets

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  • Allen, Linda
  • Gottesman, Aron A.
  • Peng, Lin

Abstract

Market liquidity is impacted by the presence of financial intermediaries that are informed and active participants in both the equity and the syndicated bank loan markets, specifically informationally advantaged lead arrangers of syndicated bank loans that simultaneously act as equity market makers (dual market makers). Employing a two-stage procedure with instrumental variables, we identify the simultaneous equations model of liquidity and dual market maker decisions. We find that the presence of dual market makers improves the liquidity of the more competitive and transparent equity markets, but widens the spread in the less competitive over-the-counter loan market, particularly for small, informationally opaque firms.

Suggested Citation

  • Allen, Linda & Gottesman, Aron A. & Peng, Lin, 2012. "The impact of joint participation on liquidity in equity and syndicated bank loan markets," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 50-78.
    • Handle: RePEc:eee:jfinin:v:21:y:2012:i:1:p:50-78
    DOI: 10.1016/j.jfi.2011.04.002
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    More about this item

    Keywords

    Syndicated bank loans; Joint participation; Market liquidity; Transparency;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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