Bond Ownership Concentration



Institutional ownership of corporate bonds is highly concentrated. The largest five bondholders hold 40.4% of the amount outstanding of the average bond issue, making the bond market more concentrated than equities. Consistent with information acquisition costs, I document that bond ownership concentration increases with credit risk, but mostly among high-yield bonds, as investment-grade bonds are information insensitive. Conditional on credit risk, bond concentration decreases with firm transparency, but only among high-yield firms. To address endogeneity concerns, I find similar results when considering TRACE dissemination of historical bond trades as an exogenous shock to information acquisition costs. I also show that borrowers with a concentrated investor base suffer from a higher cost of borrowing. One standard deviation increase in pre-issuance bond concentration is associated with a 5 to 13 basis point increase in yield spread, translating to an extra cost of $2.1 million to $5.2 million for the median bond issuance.

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