Overpricing in China’s Corporate Bond Market

51 Pages Posted: 21 Feb 2020

See all articles by Yi Ding

Yi Ding

Chinese University of Hong Kong, Shenzhen

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen)

Date Written: November 11, 2019

Abstract

Using a comprehensive dataset of Chinese corporate bond issuances, we uncover substantial evidence of issuance overpricing: the yield spread of newly issued bonds at their first secondary-market trading day is on average 5.35 bps higher than the issuance spread. This overpricing is robust across subsamples of bond issuances with different credit ratings, maturities, issuance types, and issuer status. We further provide extensive evidence to support a hypothesis that competition among underwriters drives this overpricing through two specific channels — either through rebates to participants in issuance auctions or through direct auction bidding by the underwriters for themselves or their clients.

Keywords: Corporate Bonds, Overpricing, New Issues, Underwriter, Chinese Bond Market

JEL Classification: G12, G14, G24

Suggested Citation

Ding, Yi and Xiong, Wei and Zhang, Jinfan, Overpricing in China’s Corporate Bond Market (November 11, 2019). Available at SSRN: https://ssrn.com/abstract=3525005 or http://dx.doi.org/10.2139/ssrn.3525005

Yi Ding

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang BlVD
308 Zhiren
Shenzhen, Guangdong 518100
China

Wei Xiong (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen) ( email )

Shenzhen
China

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