Debt issue costs and issue characteristics in the Eurobond market
AbstractThis paper analyzes the issue costs and initial pricing of bonds in the international market. In particular, we investigate the determinants of three components of issue costs: underwriter fee, underwriter spread (the difference between the offering price and the guaranteed price to the issuer), and underpricing (the difference between the market price and the offering price). Total underwriter compensation increases with the bonds’ credit risk and maturity, but it is insignificantly related to issue size. Interestingly, underwriters appear to price some issue characteristics directly (by adjusting the fee) and other characteristics indirectly (by setting the guaranteed price). The two compensation components (fee and spread) are negatively related to each other. We provide evidence that this trade-off is consistent with income tax considerations, as well as with two-tier pricing by underwriters. We find no evidence of underpricing.
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Bibliographic InfoPaper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 09-2003.
Length: 27 pages
Date of creation: Mar 2003
Date of revision:
International bonds; Issue costs; Underwriter compensation;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
This paper has been announced in the following NEP Reports:
- NEP-CFN-2003-07-10 (Corporate Finance)
- NEP-EEC-2003-07-10 (European Economics)
- NEP-FIN-2003-07-10 (Finance)
- NEP-RMG-2003-07-10 (Risk Management)
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