Inventory Capacity and Corporate Bond Offerings

57 Pages Posted: 11 Jan 2017 Last revised: 9 Dec 2019

See all articles by Florian Nagler

Florian Nagler

Bocconi University; IGIER - Innocenzo Gasparini Institute for Economic Research

Giorgio Ottonello

Nova School of Business and Economics

Date Written: December 9, 2019

Abstract

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

Nagler, Florian and Ottonello, Giorgio, Inventory Capacity and Corporate Bond Offerings (December 9, 2019). BAFFI CAREFIN Centre Research Paper No. 2017-48. Available at SSRN: https://ssrn.com/abstract=2896758 or http://dx.doi.org/10.2139/ssrn.2896758

Florian Nagler (Contact Author)

Bocconi University ( email )

Via Roentgen 1
Milan, MI 20136
Italy

HOME PAGE: http://sites.google.com/site/floriannagler/

IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Milan, MI 20136
Italy

Giorgio Ottonello

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

HOME PAGE: http://https://sites.google.com/view/gi8nello

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