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Issuance Overpricing of China’s Corporate Debt Securities

Yi Ding, Wei Xiong and Jinfan Zhang
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Yi Ding: Chinese University of Hong Kong
Wei Xiong: Princeton University and NBER
Jinfan Zhang: Chinese University of Hong Kong

Working Papers from Princeton University. Economics Department.

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.

Keywords: Overpricing; New Issues; Corporate Debt Securities; Chinese Market (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-cna and nep-tra
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