The Impact of Underwriter Reputation on Bond Fees and Yields during the Global Financial Crisis

50 Pages Posted: 29 Oct 2018 Last revised: 30 Oct 2018

See all articles by Zainab Mehmood

Zainab Mehmood

University of Manchester; University of Manchester

Marie Dutordoir

University of Manchester - Manchester Business School

Amedeo De Cesari

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group

Date Written: October 29, 2018

Abstract

We explore the relationship between underwriter reputation and pricing (fee and yield) of corporate bond underwriting services in the U.S. during the global financial crisis (GFC) of 2007-2009. We compare the effect of underwriter reputation on bond pricing during the GFC with that in pre- and post-crisis periods. We find that during non-crisis times, reputable underwriters charge premium fees and obtain lower yields. However, during the crisis period, the relationship between underwriter reputation and fee and yield is reversed. Reputable underwriters charge lower fees and obtain higher yields compared to less reputable underwriters. A plausible explanation for this finding lies in the tarnished reputation of large banks and the resulting competitive advantage gained by less reputable banks. However, the certification effect of reputable underwriters is restored following the crisis period, resulting in premium fees and lower yields.

Keywords: GFC, Underwriter reputation, Certification hypothesis, Fees, Yield

Suggested Citation

Mehmood, Zainab and Dutordoir, Marie and De Cesari, Amedeo, The Impact of Underwriter Reputation on Bond Fees and Yields during the Global Financial Crisis (October 29, 2018). Available at SSRN: https://ssrn.com/abstract=3270228 or http://dx.doi.org/10.2139/ssrn.3270228

Zainab Mehmood (Contact Author)

University of Manchester ( email )

Manchester
United Kingdom

University of Manchester ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Marie Dutordoir

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Amedeo De Cesari

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group ( email )

Crawford House
Booth Street East
Manchester, M15 6PB
United Kingdom
+44 (0) 161 2754298 (Phone)

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