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.

中文翻译：

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直接借贷领域的市场纪律

本文利用将业务发展公司 (BDC) 排除在股票指数之外的方法，研究了直接借贷领域市场纪律的有效性。在机构投资者抛售股票的情况下，BDC 估值的下降限制了它们筹集新股本的能力。在这次融资冲击之后，BDC 没有调整其资本结构。与此同时，他们正在减少投资组合的风险敞口。我们记录了，受债权人加强市场约束的 BDC 的风险得到了更大程度的降低。BDC 通过降低投资强度将资本冲击转嫁给其投资组合公司。