Do investment banks' relationships with investors impact pricing? / Brian J. Henderson in Management science, Vol. 58 N° 12 (Décembre 2012)  

Public ISBD [article]  inManagement science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2272-2291 Titre : Do investment banks' relationships with investors impact pricing? : The case of convertible bond issues Type de document : texte imprimé Auteurs : Brian J. Henderson, Auteur ; Heather Tookes, Auteur Année de publication : 2013 Article en page(s) : pp. 2272-2291 Note générale : Management Langues : Anglais (eng) Mots-clés : Corporate finance Securities issuance Convertible bonds Underpricing Résumé : This study examines the role of repeat interactions between placement agents (investment banks) and investors in the initial pricing of convertible bonds. Under the assumption that attracting repeat investors can reduce search frictions in primary issue markets, we test the hypothesis that banks' relationships with investors actually allow more favorable pricing for issuing firms (in contrast to the “favoritism” hypothesis, under which banks use underpricing to reward favored clients). In the empirical analysis we also allow for a potentially important alternative channel through which search frictions might impact initial pricing: expected after-market liquidity. Using a sample of 601 Rule 144A issues for the years 1997–2007, we document robust negative relationships between at-issue discounts and both types of frictions. Our findings suggest that search frictions play a meaningful role in initial convertible bond pricing and, specifically, that intermediaries can add substantial value through repeated interactions with investors. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2272.abstract [article] Do investment banks' relationships with investors impact pricing? : The case of convertible bond issues [texte imprimé] / Brian J. Henderson, Auteur ; Heather Tookes, Auteur . - 2013 . - pp. 2272-2291. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2272-2291 Mots-clés : Corporate finance Securities issuance Convertible bonds Underpricing Résumé : This study examines the role of repeat interactions between placement agents (investment banks) and investors in the initial pricing of convertible bonds. Under the assumption that attracting repeat investors can reduce search frictions in primary issue markets, we test the hypothesis that banks' relationships with investors actually allow more favorable pricing for issuing firms (in contrast to the “favoritism” hypothesis, under which banks use underpricing to reward favored clients). In the empirical analysis we also allow for a potentially important alternative channel through which search frictions might impact initial pricing: expected after-market liquidity. Using a sample of 601 Rule 144A issues for the years 1997–2007, we document robust negative relationships between at-issue discounts and both types of frictions. Our findings suggest that search frictions play a meaningful role in initial convertible bond pricing and, specifically, that intermediaries can add substantial value through repeated interactions with investors. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2272.abstract

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