Commercial Bank Underwriting of Credit-Enhanced Bonds: Are There Benefits to the Issuer?

26 Pages Posted: 22 Aug 2001

See all articles by Anthony Saunders

Anthony Saunders

New York University - Leonard N. Stern School of Business

Roger D. Stover

Iowa State University - Department of Accounting and Finance

Multiple version iconThere are 4 versions of this paper

Date Written: July 23, 2001

Abstract

Recent studies have expanded the commercial bank certification hypothesis to include banks acting in an underwriting capacity. This paper further develops that research by focusing on the industrial revenue bond market in which banks have the unique opportunity to simultaneously act as both credit guarantor and underwriter. When explicitly allowing for bank-issued standby letters of credit (guarantees), we find significantly greater yield spreads for those bonds underwritten by commercial banks compared to bonds underwritten by investment banks. Overall, no net benefit appears to accrue to the bond issuer when attempting to achieve joint (or double) certification benefits by employing commercial banks as both credit guarantor and underwriters except in this special case where the same bank acts as both guarantor and underwriter. This latter result is consistent with an "economy of scope" in monitoring and reusing information.

Keywords: Credit-Enhanced Bonds, Comercial Bank Underwriting

Suggested Citation

Saunders, Anthony and Stover, Roger D., Commercial Bank Underwriting of Credit-Enhanced Bonds: Are There Benefits to the Issuer? (July 23, 2001). Available at SSRN: https://ssrn.com/abstract=280809 or http://dx.doi.org/10.2139/ssrn.280809

Anthony Saunders (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Roger D. Stover

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States
515-294-8114 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
260
Abstract Views
2,171
rank
96,883
PlumX Metrics