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
Event2018 Financial Management Association European Conference - University of Agder, Kristiansand, Norway
Duration: 13 Jun 201815 Jun 2018
http://www.fmaconferences.org/Norway/NorwayProgram.htm

Conference

Conference2018 Financial Management Association European Conference
LocationUniversity of Agder
CountryNorway
CityKristiansand
Period13/06/201815/06/2018
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 2018 Financial Management Association European Conference, Kristiansand, Norway.
Daetz, Stine Louise ; Dick-Nielsen, Jens ; Nielsen, Mads Stenbo. / The Value of Bond Underwriter Relationships. Paper presented at 2018 Financial Management Association European Conference, Kristiansand, Norway.44 p.
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Daetz, SL, Dick-Nielsen, J & Nielsen, MS 2018, 'The Value of Bond Underwriter Relationships' Paper presented at, Kristiansand, Norway, 13/06/2018 - 15/06/2018, .

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

2018. Paper presented at 2018 Financial Management Association European Conference, Kristiansand, Norway.

Research output: Contribution to conferencePaperResearchpeer-review

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AU - Daetz, Stine Louise

AU - Dick-Nielsen, Jens

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

KW - Underwriter relationship

KW - Corporate bonds

KW - Certification

KW - Rollover risk

KW - Relationship banking

M3 - Paper

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Daetz SL, Dick-Nielsen J, Nielsen MS. The Value of Bond Underwriter Relationships. 2018. Paper presented at 2018 Financial Management Association European Conference, Kristiansand, Norway.