Overpricing in China’s Corporate Bond Market
Using a comprehensive dataset of Chinese corporate bond issuances, we uncover substantial evidence of issuance overpricing: the yield spread of newly issued bonds at their first secondary-market trading day is on average 5.35 bps higher than the issuance spread. This overpricing is robust across subsamples of bond issuances with different credit ratings, maturities, issuance types, and issuer status. We further provide extensive evidence to support a hypothesis that competition among underwriters drives this overpricing through two specific channels—either through rebates to participants in issuance auctions or through direct auction bidding by the underwriters for themselves or their clients.
We thank workshop participants at the Chinese University of Hong Kong, Shenzhen, the Five Star Conference in Beijing, and PBC School of Finance for helpful comments and suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.