Underpricing and Reputation Acquisition in the Corporate Bond Market

This paper examines the role of reputation in the corporate bond market as a substitute for underpricing. We find that underpricing occurs with seasoned debt issuers as well as debt IPOs and it is highest among riskier, unknown firms. In addition, firms with no prior banking elationship have more underpricing, while firms that have been in the bond market for many years have less. These results suggest that reputation acquisition is an important feature of corporate debt markets. For firms that are not well known in the bond market, our results indicate that underpricing arises as part of the bookbuilding process, when investment banks gather information about the bond offering