Price Pressure and Corporate Bond Underpricing: Evidence from Newly-issued and Tack-on Offerings

44 Pages Posted: 24 Jul 2022

See all articles by Jeremy Goh

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business

Paul H. Malatesta

University of Washington - Michael G. Foster School of Business

Lisa Yang

Montana State University - Bozeman

Date Written: July 4, 2022

Abstract

Tack-on bond issues are additional offerings, with the same terms and CUSIP, of an existing bond
series. We provide new evidence of systematic underpricing for tack-on corporate bonds. These
bonds are offered at prices significantly below their immediate post-offer secondary market prices.
By exploiting the availability of pre-tack-on offer prices, we find statistically significant negative
bond price reaction on the offer date. Our regression and event study results show that underpricing is partially attributable to price pressure effects. We also test existing underpricing theories and find evidence supporting the valuation uncertainty and information asymmetry hypothesis.

Keywords: Bond Underpricing, Tack-on Offerings, Price Pressures

JEL Classification: G24,G32

Suggested Citation

Goh, Jeremy and Malatesta, Paul H. and Yang, Lisa, Price Pressure and Corporate Bond Underpricing: Evidence from Newly-issued and Tack-on Offerings (July 4, 2022). Available at SSRN: https://ssrn.com/abstract=4153961 or http://dx.doi.org/10.2139/ssrn.4153961

Jeremy Goh (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Paul H. Malatesta

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Lisa Yang

Montana State University - Bozeman ( email )

Bozeman, MT 59717-2920
United States

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