The Implications of Concurrent Underwriting and Lending for Bond Underpricing 

Abstract

We show that concurrently lending to a firm while also underwriting its corporate bond offering can exacerbate the agency problems in bond issuance and thus the firm's bond borrowing costs. Examining corporate bonds issued during 2002-2022, we document that over a third are concurrent with loans arranged by the same banks that underwrite the bonds. Same-bank concurrent loans increase bond underpricing, especially among investment-grade bonds where the increase is 23%. Issuers are more likely to engage their lenders as bond underwriters, despite the higher bond underpricing this causes, in exchange for obtaining larger loans, meeting pressing refinancing needs, and keeping relationship lenders.

Keywords: Corporate bonds, syndicated loans, underpricing, agency problems, information asymmetries JEL Classications: G12, G14, G21, G24, G12