Lifting the Veil: The Price Formation of Corporate Bond Offerings
Posted: 12 Mar 2020
Date Written: August 9, 2020
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: Suggested Citation