Underwriter reputation and the quality of certification : evidence from high-yield bonds / Christian Andres ; André Betzer ; Peter Limbach. Wuppertal : Bergische Univ. Wuppertal, 2013
Inhalt
- Christian Andres, WHU - Otto Beisheim School of Management*
- André Betzer, BUW - Schumpeter School of Business and Economics**
- Peter Limbach, KIT - Karlsruhe Institute of Technology***
- This Draft: August 2013
- Abstract
- This paper provides primary evidence of whether certification via reputable underwriters is beneficial to investors in the corporate bond market. We focus on the high-yield bond market, in which certification of issuer quality is most valuable to inve...
- JEL classification: G11, G14, G24
- 1. Introduction
- 2. Literature and Hypotheses
- 3. Variables Employed
- In our analysis of the corporate bond market we take on the investors’ point of view, which is in contrast to most of the existing literature (most papers such as Fang (2005) put a focus on the issuing firm). Therefore, in a first step, we investigate...
- 3.1. Measures of Bond Performance and Borrowing Costs
- Other controls: In addition to the aforementioned variables, we use several variables that have been shown to impact initial yield spreads of high-yield corporate bonds and that we expect to have an impact on bond performance. We control for callable ...
- 4. Data and Methodology
- 4.1 Sample Construction and Summary Statistics
- 4.2 Issuer-Underwriter Matching
- 5. Empirical Findings: Bond Performance and Lead Underwriter Reputation
- yi = c0 + c1 Top 3i + c2 Number Underwritersi + c3 NYSE/AMEXi + c4 Ratingi + c5 Split Ratingi + Controls + ei (1)
- 5.1. Short-term Bond Performance
- 5.2. Medium- to Long-term Bond Performance
- The results in Table 8 provide strong support for our univariate findings in Table 4, and corroborate the foregoing results on downgrade and default probabilities. In particular, we find that bonds underwritten by Top 3 lead underwriters experience co...
- Two additional findings merit mention. As specification (5) shows, the significant increase in the number of downgrades is driven by the Top 3 dummy. When we use the dummy Top 4 - Top 10 (for underwriters with lesser reputations/dominance in the top 1...
- 6. Empirical Findings: Firms’ Borrowing Costs and Lead Underwriter Reputation
- Against the background of the previous results on bond performance, we investigate in this section the extent to which reputable lead underwriters affect bond issuers’ informational costs. We thereby test our second hypothesis (H2), which states that ...
- 6.1. Using and Interpreting Inverse Mills Ratios in Bond Pricing Equations
- 6.2. Regression Results
- BSi = c0 + c1 Top 3i + c2 Number Underwrit.i + c3 NYSE/AMEXi + c4 Ratingi + c5 Split Ratingi + Controls + ei (2)
- 7. Conclusions
- References
- Zorn, C., 2005. A Solution to Separation in Binary Response Models. Political Analysis 13, 157-170.
- Table 1: Top 10 Underwriters in the U.S. Corporate Bond Market 2000-2008
- This table presents summary statistics for the 10 largest bond underwriters (by volume underwritten) in the U.S. corporate bond market for the sample period 2000-2008. Data is from Bloomberg, and excludes self-led issues. ‘HY’ stands for high-yield bo...
- Table 2: Description of Key Variables
- This table reports the pair-wise correlations of the main variables employed in the regression analyses. All variables are defined in Table 2. Asterisks (*) indicate significance at least at the 5% level.
- Table 7: Medium- to Long-term Bond Performance and Lead Underwriter Reputation