Does the Liquidity of a Debt Issue Increase with Its Size? Evidence from the Corporate Bond and Medium-Term Note Markets.

To investigate the liquidity of large issues, this study tests for yield differences between corporate bonds and medium-term notes. In the sample, medium-term notes have an average issue size of $4 million, compared with $265 million for bonds. Among medium-term notes that have the same issuance date, the same maturity date, and the same corporate issuer, the authors find no relation between size and yields. Moreover, bonds and medium-term notes have statistically equivalent yields. Thus, rather than suggesting that large issues have greater liquidity, these findings indicate that large and small securities issued by the same borrower are close substitutes. Copyright 1995 by American Finance Association.