Issuance Overpricing of China’s Corporate Debt Securities
51 Pages Posted: 21 Feb 2020 Last revised: 7 Jun 2021
Date Written: November 11, 2019
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.
Keywords: Overpricing, New Issues, Corporate Debt Securities, Chinese Market
JEL Classification: G12, G14, G24
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