Syndicate Structure, Primary Allocations, and Secondary Market Outcomes in Corporate Bond Offerings
60 Pages Posted: 13 Aug 2020
Date Written: May 26, 2020
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: Suggested Citation