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Comparables Pricing

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  • Justin Murfin
  • Ryan Pratt

Abstract

Finance professionals commonly set prices based on the analysis of recently closed, comparable transactions. Using data on syndicated loans, we exploit the lag between loans’ closing dates and their inclusion in a widely used comparables database to identify the effect of past transactions on new transaction pricing. Comparables pricing is an important determinant of individual loan spreads, but a failure to account for overlap in information across loans leads to pricing mistakes. Comparables used repeatedly are overweighted as they develop redundant channels of influence on later transactions. Market conditions prevailing at the time a comparable was priced also unduly influence subsequent loans. Received May 23, 2016; editorial decision January 23, 2018 by Editor Robin Greenwood.

Suggested Citation

  • Justin Murfin & Ryan Pratt, 2019. "Comparables Pricing," The Review of Financial Studies, Society for Financial Studies, vol. 32(2), pages 688-737.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:2:p:688-737.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy047
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    Cited by:

    1. Dagostino, Ramona & Gao, Janet & Ma, Pengfei, 2023. "Partisanship in loan pricing," Journal of Financial Economics, Elsevier, vol. 150(3).
    2. Fedyk, Anastassia & Hodson, James, 2023. "When can the market identify old news?," Journal of Financial Economics, Elsevier, vol. 149(1), pages 92-113.
    3. Bushman, Robert & Gao, Janet & Martin, Xiumin & Pacelli, Joseph, 2021. "The influence of loan officers on loan contract design and performance," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    4. Demiroglu, Cem & James, Christopher & Velioglu, Guner, 2022. "Why are commercial loan rates so sticky? The effect of private information on loan spreads," Journal of Financial Economics, Elsevier, vol. 143(2), pages 959-972.
    5. Bao, Yangming, 2022. "Peer information in loan pricing," Journal of Corporate Finance, Elsevier, vol. 76(C).

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