Underpricing in the Corporate Bond Market

Posted: 26 Jun 2008

See all articles by Nianyun (Kelly) Cai

Nianyun (Kelly) Cai

affiliation not provided to SSRN

Jean Helwege

UC Riverside

Arthur Warga

University of Houston - Department of Finance

Date Written: November 2007

Abstract

This article examines underpricing of initial public offerings (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 offerings 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: G12, G14, G24

Suggested Citation

Cai, Nianyun (Kelly) and Helwege, Jean and Warga, Arthur, Underpricing in the Corporate Bond Market (November 2007). The Review of Financial Studies, Vol. 20, Issue 6, pp. 2021-2046, 2007. Available at SSRN: https://ssrn.com/abstract=1151581 or http://dx.doi.org/10.1093/rfs/hhm048

Nianyun (Kelly) Cai (Contact Author)

affiliation not provided to SSRN

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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