Corporate Cost of Borrowing : TRACE on Syndicated Loans

Traditionally, the cost of debt is seen as solely dependent on firm or debt characteristics. However, a firm's cost of debt might also be impacted by the informational environment, thereby offering a link between security transparency, asset pricing, and corporate finance. This paper measures the spillover effect of increased information transparency in the corporate bond market on the cost of private debt using a natural experiment, the introduction of TRACE. I find that TRACE reduces the relative loan spread for bond-issuing firms compared to firms without bonds. Further, during the introduction of TRACE, firms with bonds that are already covered by TRACE pay lower spreads than firms with bonds that are not yet captured by TRACE. This suggests a spillover effect of TRACE on loan spreads that is not only present for firms with bonds compared to firms without bonds, but also one that was visible among firms with bonds outstanding