On the Determinants of Underpricing in Corporate Bond Offerings

Sammanfattning: Money is often left on the table when corporations issue new securities. Explanations for the underpricing phenomenon are often related to information asymmetry between the investor and the issuer. In this study we investigate factors affecting underpricing on corporate bonds in the Swedish market. To some extent contrary to what was expected, the results indicate that bonds are on average overpriced. The study finds support for the riskiness of the bond and bookbuilding as determinants of underpricing. We find little support for the market level credit risk affecting underpricing, which leads us to believe that the market level credit risk might affect the type and frequency of issues rather than underpricing directly.