Hank Bessembinder, Stacey Jacobsen, William Maxwell, Kumar Venkataraman
Publication year: 2020

We describe and test hypotheses regarding underwriting syndicate structure, primary placement transactions, and secondary market outcomes for Corporate Bond offerings. We document that perceived deal risk and complexity are determinants of syndicate structure. Consistent with the reasoning that the syndicate obtains valuable information regarding investor interest during bookbuilding, we show that the syndicate “overallocates”, thereby entering short positions, deals with weaker or more uncertain secondary market demand. We show that while the syndicate incurs trading losses on the short-covering secondary market purchases that support overallocated deals, these issues are less underpriced, i.e., appreciate less in the aftermarket. We find secondary market spreads are narrower for overallocated issues, and investigate relations between syndicate structure, primary market allocations, and secondary market pricing.

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