Syndicate Structure, Primary Allocations, and Secondary Market Outcomes in Corporate Bond Offerings
Publication Date
8-13-2020
Abstract
We describe and test hypotheses regarding underwriting syndicate structure, primary placement transactions, and secondary market outcomes for Corporate Bond offerings. We document that perceived deal risk and complexity are determinants of syndicate structure. Consistent with the reasoning that the syndicate obtains valuable information regarding investor interest during book-building, we show that the syndicate “over-allocates”, thereby entering short positions, deals with weaker or more uncertain secondary market demand. We show that while the syndicate incurs trading losses on the short-covering secondary market purchases that support over-allocated deals, these issues are less under-priced, i.e., appreciate less in the aftermarket. We find secondary market spreads are narrower for over-allocated issues, and investigate relations between syndicate structure, primary market allocations, and secondary market pricing.
Document Type
Article
Keywords
Underwriting Syndicate; Primary Allocation; Overallocation; Price Stabilization; Corporate Bonds; UnderPricing; Liquidity
Disciplines
Finance
DOI
10.2139/ssrn.3611056
Source
SMU Cox: Finance (Topic)
Language
English
