The Value of Bond Underwriter Relationships

Jens Dick-Nielsen*, Mads Stenbo Nielsen, Stine Louise von Rüden

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-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, information-sensitive issuers with high rollover exposure, i.e., those issuers most in need of certification by an underwriter.
Original languageEnglish
Article number101930
JournalJournal of Corporate Finance
Volume68
Number of pages18
ISSN0929-1199
DOIs
Publication statusPublished - Jun 2021

Bibliographical note

Published online: 23 March 2021

Keywords

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

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