Syndicate Structure, Overallocation, and Secondary Market Outcomes in Corporate Bond Offerings
52 Pages Posted: 13 Aug 2020 Last revised: 18 May 2021
Date Written: May 18, 2021
We study corporate bond offerings, including underwriting syndicate structure, primary placement transactions, and secondary market outcomes. Although bond offerings rarely include “Greenshoe” options, the syndicate “overallocates” many issues, thereby attaining net short positions. Overallocations are economically substantive, facilitate the syndicate’s price stabilization efforts, and are largely offset within a few days after issuance. Secondary market liquidity is better and retail participation is higher for overallocated issues, and these issues appreciate less in the aftermarket, i.e., are less underpriced, despite syndicate purchases that temporarily support the bond price. The results indicate that the syndicate overallocates issues when uncertainty regarding secondary market order flow is high and that overallocation facilitates redistribution of the offer toward retail traders.
Keywords: Underwriting Syndicate; Primary Allocation; Overallocation; Price Stabilization; Corporate Bonds; UnderPricing; Liquidity
JEL Classification: G14; G18; G24
Suggested Citation: Suggested Citation