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.
Original languageEnglish
Publication date2018
Number of pages44
Publication statusPublished - 2018
EventThe Eighth Annual Applied Finance Conference of the Financial Management Association International 2018 - St. John's University Manhattan Campus, New York, United States
Duration: 11 May 201811 May 2018
Conference number: 8
https://www.fma.org/AFC2018

Conference

ConferenceThe Eighth Annual Applied Finance Conference of the Financial Management Association International 2018
Number8
LocationSt. John's University Manhattan Campus
CountryUnited States
CityNew York
Period11/05/201811/05/2018
Internet address

Keywords

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

Cite this

Daetz, S. L., Dick-Nielsen, J., & Nielsen, M. S. (2018). The Value of Bond Underwriter Relationships. Paper presented at The Eighth Annual Applied Finance Conference of the Financial Management Association International 2018, New York, United States.
Daetz, Stine Louise ; Dick-Nielsen, Jens ; Nielsen, Mads Stenbo. / The Value of Bond Underwriter Relationships. Paper presented at The Eighth Annual Applied Finance Conference of the Financial Management Association International 2018, New York, United States.44 p.
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Daetz, SL, Dick-Nielsen, J & Nielsen, MS 2018, 'The Value of Bond Underwriter Relationships' Paper presented at, New York, United States, 11/05/2018 - 11/05/2018, .

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

2018. Paper presented at The Eighth Annual Applied Finance Conference of the Financial Management Association International 2018, New York, United States.

Research output: Contribution to conferencePaperResearchpeer-review

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AU - Nielsen, Mads Stenbo

PY - 2018

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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

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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. 2018. Paper presented at The Eighth Annual Applied Finance Conference of the Financial Management Association International 2018, New York, United States.