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 language | English |
|---|---|
| Publication date | 2018 |
| Number of pages | 44 |
| Publication status | Published - 2018 |
| Event | The 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 2018 → 11 May 2018 Conference number: 8 https://www.fma.org/AFC2018 |
Conference
| Conference | The Eighth Annual Applied Finance Conference of the Financial Management Association International 2018 |
|---|---|
| Number | 8 |
| Location | St. John's University Manhattan Campus |
| Country/Territory | United States |
| City | New York |
| Period | 11/05/2018 → 11/05/2018 |
| Internet address |
Keywords
- Underwriter relationship
- Corporate bonds
- Certification
- Rollover risk
- Relationship banking