TY - JOUR
T1 - Issuance overpricing of China's corporate debt securities
AU - Ding, Yi
AU - Xiong, Wei
AU - Zhang, Jinfan
N1 - Funding Information:
We thank workshop participants at the Chinese University of Hong Kong, Shenzhen, Five Star Conference in Beijing, Nanjing University Business School and Tsinghua PBC School of Finance for helpful comments and suggestions. We are grateful for constructive comments from G. William Schwert (the Editor) and two referees. Jinfan Zhang acknowledges support from the National Natural Science Foundation of China (Project Number 71,733,004). The paper was previously circulated under the title “Overpricing in China's Corporate Bond Market.”
Publisher Copyright:
© 2021
PY - 2022/4
Y1 - 2022/4
N2 - We document issuance overpricing of corporate debt securities in China, which is robust across subsamples with different credit ratings, maturities, and issuers. This phenomenon contrasts with underpricing of equity and debt securities in Western countries and reflects China's distinct institutional environment. The average overpricing dropped from 7.44 basis points to 2.41 basis points after the government prohibited underwriters from using rebates in issuances in October 2017. By analyzing overpricing before and after the rebate ban and across different issuers and underwriters, we uncover two channels for underwriters, who compete for future underwriting business, to drive up overpricing: rebates and self-purchases.
AB - We document issuance overpricing of corporate debt securities in China, which is robust across subsamples with different credit ratings, maturities, and issuers. This phenomenon contrasts with underpricing of equity and debt securities in Western countries and reflects China's distinct institutional environment. The average overpricing dropped from 7.44 basis points to 2.41 basis points after the government prohibited underwriters from using rebates in issuances in October 2017. By analyzing overpricing before and after the rebate ban and across different issuers and underwriters, we uncover two channels for underwriters, who compete for future underwriting business, to drive up overpricing: rebates and self-purchases.
KW - Chinese market
KW - Corporate debt securities
KW - New issues
KW - Overpricing
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U2 - 10.1016/j.jfineco.2021.06.010
DO - 10.1016/j.jfineco.2021.06.010
M3 - Article
AN - SCOPUS:85108814058
SN - 0304-405X
VL - 144
SP - 328
EP - 346
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 1
ER -