Bank Trading Networks and Access to the Corporate Bond Market

Abstract

We show that a firm's access to the corporate bond market is constrained by its bank's trading networks. Using a hand-collected dataset of aggregate portfolio transactions between a bank's securities dealer and their institutional investor's clients, we map the trading networks of banks' underwriters. Exploiting shocks to bank-issuer relationships and the capital supplied by investors in the bank's network, we find that access to a larger network through the underwriting bank increases the probability and size of bond financing. Underwriting banks with a larger network can more easily reach primary market investors, allowing firms to issue cheaper bonds due to lower demand uncertainty.

Keywords: trading relationships, bank-investor networks, corporate bonds, firm financing, asset managers, institutional investors

JEL Classification: G12, G32