Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97198
Authors: 
Andres, Christian
Betzer, André
Limbach, Peter
Year of Publication: 
2013
Series/Report no.: 
Schumpeter Discussion Papers 2013-006
Abstract: 
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.
Subjects: 
borrowing costs
certification
downgrade and default risk
reputation
underwriting standards
JEL: 
G11
G14
G24
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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