Title

Issuance Overpricing of China’s Corporate Debt Securities

Author(s)

Yi Ding Yi Ding (Chinese University of Hong Kong)

Wei Xiong Wei Xiong (Princeton University and NBER)

Jinfan Zhang Jinfan Zhang (Chinese University of Hong Kong)

Abstract

We document issuance overpricing of corporate debt securities in China, which contrasts with underpricing of equity and debt securities in Western countries. The phenomenon in China is robust across subsamples of issuances with different credit ratings, maturities, issuer types, and issuing history, reflecting the distinct institutional environment and issuance process in China’s market for corporate debt securities. 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.

Creation Date

2021-05

Section URL ID

Paper Number

2021-50

URL

http://wxiong.mycpanel.princeton.edu/papers/Overpricing.pdf

File Function

Jel

G12, G14, G24

Keyword(s)

Overpricing, New Issues, Corporate Debt Securities, Chinese Market

Suppress

false

Series

13