Syndicate Structure, Primary Allocations, and Secondary Market Outcomes in Corporate Bond Offerings

60 Pages Posted: 13 Aug 2020

See all articles by Hendrik Bessembinder

Hendrik Bessembinder

Arizona State University; W.P. Carey School of Business

Stacey E. Jacobsen

Southern Methodist University (SMU) - Finance Department

William F. Maxwell

Southern Methodist University (SMU) - Finance Department

Kumar Venkataraman

Southern Methodist University (SMU) - Finance Department

Date Written: May 26, 2020

Abstract

We describe and test hypotheses regarding underwriting syndicate structure, primary placement transactions, and secondary market outcomes for Corporate Bond offerings. We document that perceived deal risk and complexity are determinants of syndicate structure. Consistent with the reasoning that the syndicate obtains valuable information regarding investor interest during book-building, we show that the syndicate “over-allocates”, thereby entering short positions, deals with weaker or more uncertain secondary market demand. We show that while the syndicate incurs trading losses on the short-covering secondary market purchases that support over-allocated deals, these issues are less under-priced, i.e., appreciate less in the aftermarket. We find secondary market spreads are narrower for over-allocated issues, and investigate relations between syndicate structure, primary market allocations, and secondary market pricing.

Keywords: Underwriting Syndicate; Primary Allocation; Overallocation; Price Stabilization; Corporate Bonds; UnderPricing; Liquidity

JEL Classification: G14; G18; G24

Suggested Citation

Bessembinder, Hendrik (Hank) and Jacobsen, Stacey E. and Maxwell, William F. and Venkataraman, Kumar, Syndicate Structure, Primary Allocations, and Secondary Market Outcomes in Corporate Bond Offerings (May 26, 2020). SMU Cox School of Business Research Paper No. 20-04, Available at SSRN: https://ssrn.com/abstract=3611056 or http://dx.doi.org/10.2139/ssrn.3611056

Hendrik (Hank) Bessembinder

Arizona State University ( email )

PO Box 873906
Tempe, AZ 85207
United States

W.P. Carey School of Business ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

HOME PAGE: http://https://wpcarey.asu.edu/people/profile/2717225

Stacey E. Jacobsen

Southern Methodist University (SMU) - Finance Department ( email )

United States

William F. Maxwell

Southern Methodist University (SMU) - Finance Department ( email )

United States

Kumar Venkataraman (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-7005 (Phone)
214-768-4099 (Fax)

HOME PAGE: http://people.smu.edu/kumar/

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