Inventory Capacity and Corporate Bond Offerings
57 Pages Posted: 11 Jan 2017 Last revised: 9 Dec 2019
Date Written: December 9, 2019
We empirically study how underwriters' aggregate inventory capacity effects corporate bond offerings. Customer sales in the aftermarket and underpricing rise, post-crisis, when aggregate inventory capacity is low. We provide causal evidence that underwriters that increase their allocations towards investors with pre-existing relationships drive these effects. Despite higher customer sales and underpricing, offerings with larger allocations to relationship investors benefit from a relatively lower increase in offering yields. Our results suggest that underwriter-investor relationships mitigate the impact of inventory constraints on issuers' cost of bond financing.
Keywords: U.S. corporate bond market, underwriter, initial allocation, trading and pricing in aftermarket, underwriter-investor relationships, cost of bond financing
JEL Classification: G12, G32
Suggested Citation: Suggested Citation