The Value of Bond Underwriter Relationships

42 Pages Posted: 15 May 2017 Last revised: 3 Nov 2018

See all articles by Stine Louise Daetz

Stine Louise Daetz

Copenhagen Business School; National Bank of Denmark

Jens Dick-Nielsen

Copenhagen Business School - Department of Finance

Mads Stenbo Nielsen

Copenhagen Business School - Department of Finance

Date Written: November 1, 2018

Abstract

We show that corporate bond issuers benefit from utilizing existing underwriter relationships when rolling over bonds, but at the same time become exposed to underwriter distress. A strong relationship enables the underwriter to credibly certify the issuer resulting in lower direct issuance costs and lower underpricing. However, if the underwriter becomes distressed, this spills over to the issuer's credit risk, because it weakens the relationship and increases the risk of involuntary relationship termination. The credit risk spillover is more pronounced for risky, opaque issuers with high rollover exposure, i.e., those issuers most in need of certification by an underwriter.

Keywords: Underwriter relationship; Corporate bonds; Certification; Rollover risk; Relationship banking

JEL Classification: G12; G14; G21; G24

Suggested Citation

Daetz, Stine Louise and Dick-Nielsen, Jens and Nielsen, Mads Stenbo, The Value of Bond Underwriter Relationships (November 1, 2018). Available at SSRN: https://ssrn.com/abstract=2968328 or http://dx.doi.org/10.2139/ssrn.2968328

Stine Louise Daetz (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

National Bank of Denmark ( email )

Havnegade 5
DK-1093 Copenhagen K
Denmark

Jens Dick-Nielsen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

Mads Stenbo Nielsen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark
+4538153602 (Phone)

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