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Should underwriters be trusted? Reducing agency costs through primary market supervision

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Listed:
  • Foley, Sean
  • Hu, Xiaolu
  • Huang, Haozhi
  • Li, Jiang

Abstract

We examine the mandated introduction of a supervised auction framework within China's primary bond market. This regulatory intervention resulted in a substantial reduction in debt costs for Chinese Bond issuers, primarily attributed to the alleviation of agency conflicts between underwriters and issuers. Leveraging unique bidder-level data obtained from a lead underwriter, our study provides replicable tools to discern collusive bidding behavior. This sheds light on instances of artificially inflated bond yields, highlighting economically burdensome practices. Our findings can assist regulators, issuers, and investors engaged in unsupervised auction mechanisms. Our insights offer potential enhancements to regulatory frameworks and operational efficiency across various sectors, including securities issuance, construction projects, and procurement.

Suggested Citation

  • Foley, Sean & Hu, Xiaolu & Huang, Haozhi & Li, Jiang, 2025. "Should underwriters be trusted? Reducing agency costs through primary market supervision," The British Accounting Review, Elsevier, vol. 57(3).
    • Handle: RePEc:eee:bracre:v:57:y:2025:i:3:s0890838924002907
    DOI: 10.1016/j.bar.2024.101510
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    More about this item

    Keywords

    Auction; Bonds; China; Primary markets; Underwriter manipulation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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