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Inventory-Constrained Underwriters and Corporate Bond Offerings
[Signalling by underpricing in the IPO market]

Author

Listed:
  • Florian Nagler
  • Giorgio Ottonello

Abstract

We empirically study how inventory constraints of underwriters affect corporate bond offerings. Using underwriter-insurer-level transaction data, we find that a more constrained underwriter is more likely to place a bond and increases the allocation in the primary market to an insurer with a stronger preexisting relationship. The same underwriter is also more likely to buy back part of an allocation from the same insurer within 6 to 12 months after an offering. Overall, by “parking” inventory to relationship investors in the primary market, underwriters mitigate the effect of their inventory constraints on firms’ bond financing costs. (JEL G12, G32)

Suggested Citation

  • Florian Nagler & Giorgio Ottonello, 2022. "Inventory-Constrained Underwriters and Corporate Bond Offerings [Signalling by underpricing in the IPO market]," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 12(3), pages 639-666.
    • Handle: RePEc:oup:rasset:v:12:y:2022:i:3:p:639-666.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raab030
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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