Inventory-Constrained Underwriters and Corporate Bond Offerings

64 Pages Posted: 11 Jan 2017 Last revised: 19 Oct 2021

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: October 1, 2021

Abstract

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

Nagler, Florian and Ottonello, Giorgio, Inventory-Constrained Underwriters and Corporate Bond Offerings (October 1, 2021). 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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