Information and Liquidity of Over-the-Counter Securities: Evidence from Public Registration of Private Debt

Abstract

Theory offers equivocal guidance on how enhanced corporate disclosure and transparency impact underlying liquidity. We examine the market liquidity effects of enhanced information induced by the public registration of 144A bonds, a significant and growing segment of the U.S. bond market. Using the regulatory version of TRACE data for the period 2002-2013, and employing two sets of difference-in-difference analyses, we find that liquidity measures improve consistently for higher ex-ante information asymmetry issues following public registration of 144A bonds. Our results support that disclosure reduces information risk and hence improves liquidity in the OTC bond market.