Do Investment Banks' Relationships with Investors Impact Pricing? The Case of Convertible Bond Issues
研究投资银行与投资者的重复互动如何影响可转换债券的初始定价，发现这种关系能为发行公司带来更有利的定价，表明中介机构通过重复互动创造价值。
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. This paper was accepted by Brad Barber, finance.