Underpricing in the Corporate Bond Market

39 Pages Posted: 31 Jul 2007

See all articles by Kelly Nianyun Cai

Kelly Nianyun Cai

University of Michigan at Dearborn - School of Management

Jean Helwege

UC Riverside

Arthur Warga

University of Houston - Department of Finance

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Abstract

This paper examines underpricing of IPOs and seasoned offerings in the corporate bond market. We investigate whether underpricing represents a solution to an information problem or a liquidity problem. We find that underpricing occurs with both IPOs and seasoned offering and is highest among riskier, unknown firms. Our evidence suggests that information problems drive underpricing, with support for both the bookbuilding view of underpricing and the asymmetric information theory. We do not find evidence in favor of the Rock model of underpricing or any evidence that illiquidity causes underpricing.

Keywords: bonds, reputation, underpricing, debt IPOs

JEL Classification: G12, G14

Suggested Citation

Cai, Kelly Nianyun and Helwege, Jean and Warga, Arthur, Underpricing in the Corporate Bond Market. Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1004072

Kelly Nianyun Cai (Contact Author)

University of Michigan at Dearborn - School of Management ( email )

19000 Hubbard Dr.
Dearborn, MI 48126
United States

Jean Helwege

UC Riverside ( email )

900 University Ave.
Anderson Hall
Riverside, CA 92521
United States
9518274284 (Phone)

Arthur Warga

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4779 (Phone)
713-743-4789 (Fax)

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