Debt issue costs and issue characteristics in the Eurobond market

Arie Melnik and Doron Nissim ()

ICER Working Papers from ICER - International Centre for Economic Research

Abstract: This paper analyzes the issue costs and initial pricing of bonds in the international market. In particular, we investigate the determinants of three components of issue costs: underwriter fee, underwriter spread (the difference between the offering price and the guaranteed price to the issuer), and underpricing (the difference between the market price and the offering price). Total underwriter compensation increases with the bonds’ credit risk and maturity, but it is insignificantly related to issue size. Interestingly, underwriters appear to price some issue characteristics directly (by adjusting the fee) and other characteristics indirectly (by setting the guaranteed price). The two compensation components (fee and spread) are negatively related to each other. We provide evidence that this trade-off is consistent with income tax considerations, as well as with two-tier pricing by underwriters. We find no evidence of underpricing.

Keywords: International bonds; Issue costs; Underwriter compensation (search for similar items in EconPapers)
JEL-codes: G12 G15 G24 G30 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2003-03
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-fin and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:icr:wpicer:09-2003

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