Lifting the Veil: The Price Formation of Corporate Bond Offerings

Posted: 12 Mar 2020

See all articles by Liying Wang

Liying Wang

University of Nebraska at Lincoln

Date Written: August 9, 2020

Abstract

Using newly available data on initial prices, this study is the first to analyze the price updating process associated with corporate bond (CB) offerings. Similar to equity IPOs, I find evidence that bookbuilding theories help explain the CB offering price. In particular, price updates reduce underwriters' pricing errors, and there is a partial adjustment phenomenon. Furthermore, CB underwriters propose a lower initial price in cases of greater uncertainty. However, unlike equity IPOs, I find that riskier CB offerings exhibit smaller price updates with larger variations. This implies that part of the CB price update is unrelated to investors' information production.

Keywords: Corporate bond offerings, Bookbuilding, Price update, Underpricing, Partial adjustment

JEL Classification: G12, G24, G32

Suggested Citation

Wang, Liying, Lifting the Veil: The Price Formation of Corporate Bond Offerings (August 9, 2020). Available at SSRN: https://ssrn.com/abstract=3541255

Liying Wang (Contact Author)

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

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