Chinese University of Hong Kong
Longxiang Ave. 2001
Institutional Affiliation: Chinese University of Hong Kong, Shenzhen
NBER Working Papers and Publications
|March 2020||Overpricing in China’s Corporate Bond Market|
with Yi Ding, Wei Xiong: w26815
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.