The Value of Bond Underwriter Relationships

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

We show that corporate bond issuers benefit from utilizing existing underwriter relationships when rolling over bonds, but at the same time become exposed to underwriter distress. A strong relationship enables the underwriter to credibly certify the issuer resulting in lower direct issuance costs and lower underpricing. However, if the underwriter becomes distressed, this spills over to the issuer's credit risk, because it weakens the relationship and increases the risk of involuntary relationship termination. The credit risk spillover is more pronounced for risky, opaque issuers with high rollover exposure, i.e., those issuers most in need of certification by an underwriter.
We show that corporate bond issuers benefit from utilizing existing underwriter relationships when rolling over bonds, but at the same time become exposed to underwriter distress. A strong relationship enables the underwriter to credibly certify the issuer resulting in lower direct issuance costs and lower underpricing. However, if the underwriter becomes distressed, this spills over to the issuer's credit risk, because it weakens the relationship and increases the risk of involuntary relationship termination. The credit risk spillover is more pronounced for risky, opaque issuers with high rollover exposure, i.e., those issuers most in need of certification by an underwriter.

Conference

ConferenceThe 15th International Paris December Finance Meeting
Number15
LocationNovotel Paris les Halles hotel
CountryFrance
CityParis
Period21/12/201721/12/2017
Internet address

Keywords

  • Underwriter relationship
  • Corporate bonds
  • Certification
  • Rollover risk
  • Relationship banking

Cite this

Daetz, S. L., Dick-Nielsen, J., & Nielsen, M. S. (2017). The Value of Bond Underwriter Relationships. Paper presented at The 15th International Paris December Finance Meeting, Paris, France.
Daetz, Stine Louise ; Dick-Nielsen, Jens ; Nielsen, Mads Stenbo. / The Value of Bond Underwriter Relationships. Paper presented at The 15th International Paris December Finance Meeting, Paris, France.44 p.
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abstract = "We show that corporate bond issuers benefit from utilizing existing underwriter relationships when rolling over bonds, but at the same time become exposed to underwriter distress. A strong relationship enables the underwriter to credibly certify the issuer resulting in lower direct issuance costs and lower underpricing. However, if the underwriter becomes distressed, this spills over to the issuer's credit risk, because it weakens the relationship and increases the risk of involuntary relationship termination. The credit risk spillover is more pronounced for risky, opaque issuers with high rollover exposure, i.e., those issuers most in need of certification by an underwriter.",
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author = "Daetz, {Stine Louise} and Jens Dick-Nielsen and Nielsen, {Mads Stenbo}",
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Daetz, SL, Dick-Nielsen, J & Nielsen, MS 2017, 'The Value of Bond Underwriter Relationships' Paper presented at, Paris, France, 21/12/2017 - 21/12/2017, .

The Value of Bond Underwriter Relationships. / Daetz, Stine Louise ; Dick-Nielsen, Jens; Nielsen, Mads Stenbo.

2017. Paper presented at The 15th International Paris December Finance Meeting, Paris, France.

Research output: Contribution to conferencePaperResearchpeer-review

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T1 - The Value of Bond Underwriter Relationships

AU - Daetz,Stine Louise

AU - Dick-Nielsen,Jens

AU - Nielsen,Mads Stenbo

PY - 2017

Y1 - 2017

N2 - We show that corporate bond issuers benefit from utilizing existing underwriter relationships when rolling over bonds, but at the same time become exposed to underwriter distress. A strong relationship enables the underwriter to credibly certify the issuer resulting in lower direct issuance costs and lower underpricing. However, if the underwriter becomes distressed, this spills over to the issuer's credit risk, because it weakens the relationship and increases the risk of involuntary relationship termination. The credit risk spillover is more pronounced for risky, opaque issuers with high rollover exposure, i.e., those issuers most in need of certification by an underwriter.

AB - We show that corporate bond issuers benefit from utilizing existing underwriter relationships when rolling over bonds, but at the same time become exposed to underwriter distress. A strong relationship enables the underwriter to credibly certify the issuer resulting in lower direct issuance costs and lower underpricing. However, if the underwriter becomes distressed, this spills over to the issuer's credit risk, because it weakens the relationship and increases the risk of involuntary relationship termination. The credit risk spillover is more pronounced for risky, opaque issuers with high rollover exposure, i.e., those issuers most in need of certification by an underwriter.

KW - Underwriter relationship

KW - Corporate bonds

KW - Certification

KW - Rollover risk

KW - Relationship banking

KW - Underwriter relationship

KW - Corporate bonds

KW - Certification

KW - Rollover risk

KW - Relationship banking

M3 - Paper

ER -

Daetz SL, Dick-Nielsen J, Nielsen MS. The Value of Bond Underwriter Relationships. 2017. Paper presented at The 15th International Paris December Finance Meeting, Paris, France.