An analysis of the primary corporate bond distribution process : building an orderbook, selecting bookrunners and determining allocations

Student thesis: Doctoral Thesis


This thesis studies three aspects of the primary corporate bond distribution process, being the level of investor demand generated, the performance of bookrunners and the composition of allocations. These are important areas for a corporate treasurer to understand in order to minimise his firm's at-issue funding costs. They are also relevant for financial intermediaries seeking to optimise their syndication and competitive strategies. Moreover this study benefits financial regulators, given growing concerns around lack of transparency in the bond distribution process. My research is focused on an overall sample of 1,224 euro-denominated Western European investment grade public bond tranches issued between 2001 and 2012. I analyse the level of investor demand through the tranche orderbook oversubscription, a variable obtained from practitioners' sources. This is regressed against hypotheses informed by debt sourcing, agency costs and portfolio choice theories. Bookrunner performance is analysed through studying the ability of different bookrunner group formations to lower the at-issue credit spread. This includes bookrunner variables that proxy for syndicate size, allocation of responsibilities, reputation and geography. The allocation composition, being a relatively new area of research, is analysed through a subsample of tranche-level investor geography and type allocation percentages. I explore the impact that issuer, tranche, firm, investor demand and bookrunner parameters have on these statistics. These studies has important implications for various strands of academic literature. It contributes to the debate on the role and impact of financial intermediaries with my results suggesting domestic bookrunners and smaller bookrunner syndicate sizes perform the highest quality services. It also has implications for the public-private debt sourcing literature; my findings highlight that bond investors do purchase more risky instruments from less frequent issuers, suggesting the hurdle for obtaining bond market financing is lower than previously theorised. They also contribute to bond portfolio management discussions, as I find in Europe investors on the whole are more comfortable spreading their holdings by rating category than by geography. My results also have implications for the debate on domestic versus foreign bond market issuance, as I find that only firms with highly oversubscribed transactions or those from mid-tier economies increase their reliance on international bond markets.
Date of Award21 Apr 2016
Original languageEnglish
Awarding Institution
  • University Of Strathclyde

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