Date of Award

5-2023

Document Type

Campus Access Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Business Administration

First Advisor

Yijia (Eddie) Zhao

Second Advisor

Mine Ertugrul

Third Advisor

Tyler J. Hull

Abstract

This dissertation proposal is composed of three essays related to corporate bond offerings. The first essay investigates the factors that contribute to Diverse-owned underwriters (DUWs) participation in corporate bond issuances and the real effects on issuers and lead underwriters. The research reveals that lead underwriters consider issuers' information transparency as the primary determinant of DUW inclusion and their ESG performance as secondary. Issuers' ESG performance and local public attention on social justice catalyze DUW inclusion. Although issuers experience higher financing costs and lower CAR, they value their diversity commitment, thus building stronger relationships with lead underwriters after the issuance. Lead underwriters get a positive CAR after the issuance. The trend of DUW inclusion mutually benefits the lead underwriters, DUWs, and issuers.

The second essay compares the effects of issuer-banker and issuer-bank relationships on corporate bond demand and pricing using hand-collected investment banker data. In investment-grade, a closer issuer-banker relationship eliminates the impact of negative investor information by increasing the oversubscription ratio. In both investment grade and high-yield sectors, a strong issuer-banker relationship is significantly associated with fewer price adjustments. While issuer-bank relationships show no significant effects. This study suggests the value of investment bankers, not easily duplicated within institutions.

The third essay examines the firms’ response to credit supply, using evidence from upsized corporate bond offerings. During bookbuiding, When the book size is strong, firms “tighten” yields by small amounts; increases to the offering amount (“upsizing”) are common and sizeable, particularly for firms that are otherwise financially constrained. Even when issues are upsized, many offerings remain highly oversubscribed, indicating issuers do not increase the amount of debt they issue to match the full credit supply available. Because firms’ fundamentals and financing needs are unchanged in the few hours of bookbuilding, upsizing provides a bond-level measure enabling us to study the impact of realized credit supply on post-issuance leverage and investment. Firms use additional proceeds to reduce bank debt and increase cash holdings; net increases in leverage are temporary. Our evidence does not support concerns of overinvestment in periods of “easy” credit markets.

Comments

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