Inventory-Constrained Underwriters and Corporate Bond Offerings
64 Pages Posted: 11 Jan 2017 Last revised: 19 Oct 2021
Date Written: October 1, 2021
We empirically study how inventory constraints of underwriters affect corporate bond offerings. Using transaction data at the underwriter-insurer level, we find that a more constrained underwriter is more likely to place a bond and increases the allocation in the primary market to an insurer with a stronger pre-existing relationship. The same underwriter is also more likely to buy back part of an allocation from the same insurer within 6 to 12 months after an offering. Overall, by parking inventory to relationship investors in the primary market, underwriters mitigate the effect of their inventory constraints on firms' cost of bond financing.
Keywords: U.S. corporate bond market, insurance firms, underwriter, primary market, underwriter-investor relationships, cost of bond financing
JEL Classification: G12, G32
Suggested Citation: Suggested Citation