Issuance Overpricing of China’s Corporate Debt Securities

51 Pages Posted: 21 Feb 2020 Last revised: 27 May 2022

See all articles by Yi Ding

Yi Ding

Chinese University of Hong Kong, Shenzhen

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen)

Date Written: November 11, 2019

Abstract

We document issuance overpricing of corporate debt securities in China, which is robust across subsamples with different credit ratings, maturities, and issuers. This phenomenon contrasts with underpricing of equity and debt securities in Western countries and reflects China’s distinct institutional environment. The average overpricing dropped from 7.44 basis points to 2.41 basis points after the government prohibited underwriters from using rebates in issuances in October 2017. By analyzing overpricing before and after the rebate ban and across different issuers and underwriters, we uncover two channels for underwriters, who compete for future underwriting business, to drive up overpricing: rebates and self-purchases.

Keywords: Overpricing, New Issues, Corporate Debt Securities, Chinese Market

JEL Classification: G12, G14, G24

Suggested Citation

Ding, Yi and Xiong, Wei and Zhang, Jinfan, Issuance Overpricing of China’s Corporate Debt Securities (November 11, 2019). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3525005 or http://dx.doi.org/10.2139/ssrn.3525005

Yi Ding

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang BlVD
308 Zhiren
Shenzhen, Guangdong 518100
China

Wei Xiong (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen) ( email )

Shenzhen
China

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