Template-type: ReDIF-Paper 1.0
Author-Name: Florian Nagler
Author-Name: Giorgio Ottonello
Title: Structural Changes in Corporate Bond Underpricing
Abstract: We show that in the aftermath of the financial crisis underwriters systematically place the most underpriced bonds to closely affiliated investors. We argue that in securing future intermediation in newly issued bonds, underwriters collude with affiliated investors who are rewarded through increased underpricing. We employ a novel identification strategy based on institutional investors' past holdings of bonds issued by underwriters to isolate the strength of underwriter-investor relations. Our channel fully explains the increase in average underpricing in the post-crisis relative to the pre-crisis period. Furthermore, we underpin the mechanism by examining the trading activity of newly issued bonds. Our results are informative about potential implications of post-crisis regulation.
Classification-JEL: G12, G32
Keywords: US corporate bond market, underpricing, underwriter-investor relations, post- crisis regulation, reaching for yield
Length: 50 pages 
Number: 1748
Creation-Date: 2017
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1748.pdf
File-Format: application/pdf
File-Size: 439
Handle: RePEc:baf:cbafwp:cbafwp1748