The Value of Bond Underwriter Relationships
66 Pages Posted: 15 May 2017 Last revised: 22 Oct 2021
Date Written: February 12, 2021
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: Suggested Citation