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Lifting the veil: The price formation of corporate bond offerings

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  • Wang, Liying

Abstract

Using newly available data on initial prices, this study is the first to analyze the price-updating process associated with corporate bond (CB) offerings. Similar to the case for equity IPOs, the evidence shows bookbuilding theories help explain the CB offering price. In particular, CB price updates reduce underwriters’ pricing errors. The partial adjustment phenomenon exists, and underwriters propose a lower initial price in cases of greater uncertainty. However, the CB price update has a large mean value and is smaller for lower-rated offerings, indicating part of the CB price update is unrelated to investors’ information production.

Suggested Citation

  • Wang, Liying, 2021. "Lifting the veil: The price formation of corporate bond offerings," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1340-1358.
    • Handle: RePEc:eee:jfinec:v:142:y:2021:i:3:p:1340-1358
    DOI: 10.1016/j.jfineco.2021.06.037
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    References listed on IDEAS

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    3. Max Bruche & Ralf R. Meisenzahl & David Xiaoyu Xu, 2023. "What Do Lead Banks Learn from Leveraged Loan Investors?," Working Paper Series WP 2023-44, Federal Reserve Bank of Chicago.
    4. Mäkinen, Taneli & Li, Fan & Mercatanti, Andrea & Silvestrini, Andrea, 2022. "Causal analysis of central bank holdings of corporate bonds under interference," Economic Modelling, Elsevier, vol. 113(C).

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    More about this item

    Keywords

    Corporate bond; Bookbuilding; Price update; Underpricing; Partial adjustment phenomenon;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • 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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