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Does investor diversity in loan syndications affect the initial returns in the secondary market?

Andersson, Erik LU and Fernandes, João LU (2023) NEKN02 20231
Department of Economics
Abstract
The syndicated loan market is a major source of corporate funding, raising $5 trillion in 2021. The secondary market where these loans are traded has seen a rapid growth in the last few decades. This growth was accompanied by the entrance of new types of participants, increasing the investor diversity. Similar to other markets, there is a price difference between the initial stage and the entrance in the open market. This under-pricing has been well researched in the IPO market but this research is yet to be done on these types of loans. This study investigates the impact of investor diversity on the discount. The relationship is expected to be negatively correlated, this hypothesis is reached though a theoretical argument, connecting... (More)
The syndicated loan market is a major source of corporate funding, raising $5 trillion in 2021. The secondary market where these loans are traded has seen a rapid growth in the last few decades. This growth was accompanied by the entrance of new types of participants, increasing the investor diversity. Similar to other markets, there is a price difference between the initial stage and the entrance in the open market. This under-pricing has been well researched in the IPO market but this research is yet to be done on these types of loans. This study investigates the impact of investor diversity on the discount. The relationship is expected to be negatively correlated, this hypothesis is reached though a theoretical argument, connecting investor diversity to market efficiency. The hypothesis was tested using historical data from the LPC DealScan database, using investor types and ownership concentration as proxies to diversity. This investigation showed statistically significant results, suggesting that the expected relationship exists. The results are robust even when controlling for fixed effects. (Less)
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author
Andersson, Erik LU and Fernandes, João LU
supervisor
organization
course
NEKN02 20231
year
type
H1 - Master's Degree (One Year)
subject
keywords
Syndicated loans, Information diversity, Investor diversity, Under-pricing, Initial returns, Discount
language
English
id
9125833
date added to LUP
2023-11-24 08:56:27
date last changed
2023-11-24 08:56:27
@misc{9125833,
  abstract     = {{The syndicated loan market is a major source of corporate funding, raising $5 trillion in 2021. The secondary market where these loans are traded has seen a rapid growth in the last few decades. This growth was accompanied by the entrance of new types of participants, increasing the investor diversity. Similar to other markets, there is a price difference between the initial stage and the entrance in the open market. This under-pricing has been well researched in the IPO market but this research is yet to be done on these types of loans. This study investigates the impact of investor diversity on the discount. The relationship is expected to be negatively correlated, this hypothesis is reached though a theoretical argument, connecting investor diversity to market efficiency. The hypothesis was tested using historical data from the LPC DealScan database, using investor types and ownership concentration as proxies to diversity. This investigation showed statistically significant results, suggesting that the expected relationship exists. The results are robust even when controlling for fixed effects.}},
  author       = {{Andersson, Erik and Fernandes, João}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Does investor diversity in loan syndications affect the initial returns in the secondary market?}},
  year         = {{2023}},
}