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Market Discipline in the Direct Lending Space

Review of Financial Studies, ISSN: 1465-7368, Vol: 37, Issue: 4, Page: 1190-1264
2024
  • 3
    Citations
  • 0
    Usage
  • 12
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    3
    • Citation Indexes
      3
  • Captures
    12

Conference Paper Description

Using the exclusion of business development companies (BDCs) from stock indexes, this paper studies the effectiveness of market discipline in the direct lending space. Amid share sell-offs by institutional investors, a drop in BDCs' valuations limits their ability to raise new equity capital. Following this funding shock, BDCs do not adjust their capital structure. At the same time, they are reducing the risk exposure of their portfolios. We document a greater reduction in risk for BDCs subject to stronger market discipline from their debtholders. BDCs pass through the capital shock to their portfolio firms by reducing their investment intensity.

Bibliographic Details

Tetiana Davydiuk; Tatyana Marchuk; Samuel Rosen; Gregor Matvos

Oxford University Press (OUP)

Business, Management and Accounting; Economics, Econometrics and Finance

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