Underpricing and Reputation Acquisition in the Corporate Bond Market

46 Pages Posted: 26 Jan 2005

See all articles by Kelly Nianyun Cai

Kelly Nianyun Cai

University of Michigan at Dearborn - School of Management

Jean Helwege

UC Riverside

Arthur Warga

University of Houston - Department of Finance

Date Written: January 2005

Abstract

This paper examines the role of reputation in the corporate bond market as a substitute for underpricing. We find that underpricing occurs with seasoned debt issuers as well as debt IPOs and it is highest among riskier, unknown firms. In addition, firms with no prior banking elationship have more underpricing, while firms that have been in the bond market for many years have less. These results suggest that reputation acquisition is an important feature of corporate debt markets. For firms that are not well known in the bond market, our results indicate that underpricing arises as part of the bookbuilding process, when investment banks gather information about the bond offering.

Keywords: bonds, reputation, underpricing, debt IPOs

Suggested Citation

Cai, Kelly Nianyun and Helwege, Jean and Warga, Arthur, Underpricing and Reputation Acquisition in the Corporate Bond Market (January 2005). Available at SSRN: https://ssrn.com/abstract=654761 or http://dx.doi.org/10.2139/ssrn.654761

Kelly Nianyun Cai

University of Michigan at Dearborn - School of Management ( email )

19000 Hubbard Dr.
Dearborn, MI 48126
United States

Jean Helwege (Contact Author)

UC Riverside ( email )

900 University Ave.
Anderson Hall
Riverside, CA 92521
United States
9518274284 (Phone)

Arthur Warga

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4779 (Phone)
713-743-4789 (Fax)

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