Underwriter reputation and the quality of certification: Evidence from high-yield bonds

Arbeitspapier

This paper provides primary evidence of whether certification via reputable underwriters is beneficial to investors in the corporate bond market. We focus on the high-yield bond market, in which certification of issuer quality is most valuable to investors owing to low liquidity and issuing firms' high opacity and default risk. We find bonds underwritten by the most reputable underwriters to be associated with significantly higher downgrade and default risk. Investors seem to be aware of this relation, as we further find the private information conveyed via the issuer-reputable underwriter match to have a significantly positive effect on at-issue yield spreads. Our results are consistent with the market-power hypothesis, and contradict the traditional certification hypothesis and underlying reputation mechanism.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Schumpeter Discussion Papers ; No. 2013-006

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Information and Market Efficiency; Event Studies; Insider Trading ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
• Subject: borrowing costs ; certification ; downgrade and default risk ; reputation ; underwriting standards

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Andres, Christian ; Betzer, André ; Limbach, Peter
• Event: Veröffentlichung
• (who): University of Wuppertal, Schumpeter School of Business and Economics
• (where): Wuppertal
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/97198
• URN: urn:nbn:de:hbz:468-20130820-111513-2
• Last update: 10.03.2025, 11:44 AM CET