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Do Underwriters Short-Change Corporations Issuing Bonds?

Published online by Cambridge University Press:  27 October 2023

Jeremy C. Goh Open the ORCID record for Jeremy C. Goh [Opens in a new window]  and
Lisa (Zongfei) Yang
Jeremy C. Goh*
Affiliation:
Singapore Management University Lee Kong Chian School of Business
Lisa (Zongfei) Yang
Affiliation:
Loyola University Chicago Quinlan School of Business [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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We confirm prior evidence that bonds on average are offered at prices below their immediate post-offer secondary market prices. However, in cases where banks lead–manage their own bond offerings the underpricing is significantly less as compared with other non-self-marketed offerings. These findings are robust across various matched samples and selection models. Our results suggest that the bond offering process is characterized by substantive agency conflicts between shareholders of corporations (issuers) and underwriters.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 1 , February 2024 , pp. 369 - 394
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Hendrik Bessembinder, Gary Caton, Keith Jakob, Frank Kerins, Paul Malatesta (the editor), William Maxwell (the referee), William Megginson, and seminar participants at Montana State University, Sun Yat-sen University, and Singapore Management University, as well as Jon Putman from Montana Board of Investments for discussion on related industry practices. We also thank the late Louis Ederington who was not only our mentor but a dear friend. Yang acknowledges support from Montana State University Jake Jabs College of Business & Entrepreneurship, where the work on this article started, and extends much appreciation to her colleagues at her Ph.D.-granting institution (the University of Oklahoma) and MSU for their many suggestions.

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