Syndicate Structure, Overallocation, and Secondary Market Outcomes in Corporate Bond Offerings

52 Pages Posted: 13 Aug 2020 Last revised: 18 May 2021

See all articles by Hendrik Bessembinder

Hendrik Bessembinder

Arizona State University; W.P. Carey School of Business

Stacey E. Jacobsen

Southern Methodist University (SMU) - Finance Department

William F. Maxwell

Southern Methodist University (SMU) - Finance Department

Kumar Venkataraman

Southern Methodist University (SMU) - Finance Department

Date Written: May 18, 2021

Abstract

We study corporate bond offerings, including underwriting syndicate structure, primary placement transactions, and secondary market outcomes. Although bond offerings rarely include “Greenshoe” options, the syndicate “overallocates” many issues, thereby attaining net short positions. Overallocations are economically substantive, facilitate the syndicate’s price stabilization efforts, and are largely offset within a few days after issuance. Secondary market liquidity is better and retail participation is higher for overallocated issues, and these issues appreciate less in the aftermarket, i.e., are less underpriced, despite syndicate purchases that temporarily support the bond price. The results indicate that the syndicate overallocates issues when uncertainty regarding secondary market order flow is high and that overallocation facilitates redistribution of the offer toward retail traders.

Keywords: Underwriting Syndicate; Primary Allocation; Overallocation; Price Stabilization; Corporate Bonds; UnderPricing; Liquidity

JEL Classification: G14; G18; G24

Suggested Citation

Bessembinder, Hendrik (Hank) and Jacobsen, Stacey E. and Maxwell, William F. and Venkataraman, Kumar, Syndicate Structure, Overallocation, and Secondary Market Outcomes in Corporate Bond Offerings (May 18, 2021). SMU Cox School of Business Research Paper No. 20-04, Available at SSRN: https://ssrn.com/abstract=3611056 or http://dx.doi.org/10.2139/ssrn.3611056

Hendrik (Hank) Bessembinder

Arizona State University ( email )

PO Box 873906
Tempe, AZ 85207
United States

W.P. Carey School of Business ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

HOME PAGE: http://https://wpcarey.asu.edu/people/profile/2717225

Stacey E. Jacobsen

Southern Methodist University (SMU) - Finance Department ( email )

United States

William F. Maxwell

Southern Methodist University (SMU) - Finance Department ( email )

United States

Kumar Venkataraman (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-7005 (Phone)
214-768-4099 (Fax)

HOME PAGE: http://people.smu.edu/kumar/

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