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Bond default risk transmission through a common underwriter: evidence from China.
- Source :
- European Journal of Finance; Aug2024, Vol. 30 Issue 12, p1345-1361, 17p
- Publication Year :
- 2024
-
Abstract
- Using samples of corporate bonds issued by Chinese A-share firms from 2014 to 2021, we examine whether information about bond defaults transmits to other bonds underwritten by a common underwriter. We document that during the underwriting process for a new corporate bond, if any prior bonds underwritten by the same underwriter have defaulted, the yield spread of the new corporate bond increases significantly. Specifically, such a new bond, on average, has a yield spread that is 16.8 basis points higher than one without a common underwriter. The results suggest that investors perceive the default risk of a new bond increases due to a deteriorated reputation of the underwriter. Additional analyses suggest that the adverse effect of the new bond yield spread is less salient when an underwriter has a strong reputation, is state-owned, or has foreign shareholding; the issuer is state-owned or dual listed overseas. Overall, default information in the bond market transmits through common underwriters. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 1351847X
- Volume :
- 30
- Issue :
- 12
- Database :
- Complementary Index
- Journal :
- European Journal of Finance
- Publication Type :
- Academic Journal
- Accession number :
- 178359470
- Full Text :
- https://doi.org/10.1080/1351847X.2023.2290058