Structural Changes in Corporate Bond Underpricing

  • Giorgio Ottonello (Contributor)
  • Florian Nagler (Contributor)

Activity: Talk or presentationScience to science

Description

We show that in the aftermath of the financial crisis underpricing of corporate bonds increases because underwriters systematically place bonds to relationship investors. We argue that the post-crisis decrease in inventory-carrying capacities incentivizes underwriters to secure future intermediation by outsourcing bonds to related investors, who require in exchange increased underpricing. We isolate the strength of underwriter-investor relations by employing a novel empirical identification strategy based on institutional investors’ past holdings of underwriters’ own bonds. The relationship channel fully captures the increase in underpricing from the pre-crisis to the post-crisis period. Furthermore, it shows that relationship investors are net sellers of newly issued bonds in the post-crisis period. The results are informative about implications of post-crisis regulation.
Period26 Oct 201727 Oct 2017
Event titleMarket Structure Conference: Market Microstructure & Capital Formation (FINRA/Columbia University)
Event typeUnknown
Degree of RecognitionInternational

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502