Underwriter Reputation, Underwriting Succession And The Cost Of Corporate Bond

IPO (Initial Public Offerings), is one of the most important methods for companies to financing. However, the lacking of media is becoming the limitation of refinancing for listed companies. Depending on the recommendation of CSRC (China Securities Regulatory Commission), corporate bonds appeared in2007. Listed companies which want to refinancing attempt to deliver signals to investors. However, due to asymmetric information, the effect of signals does not work well. As the most important intermediary, underwriters deliver useful signals to investors, which rely on their specialization and the knowledge of listed companies. The cost of corporate bond depends on whether the underwriter’s signals obtain recognition or not.Existing evidence demonstrates that, in the process of IPO, underwriter reputation could influence IPO underpricing. Under regulatory regime, sponsor-underwriters should operate diligence and deliver signals to investors. This paper tries to explain that, in the process of corporate bonds, whether reputation of sponsor-underwriters would influence cost of them. Meanwhile, this paper tries to research the role which underwriting succession plays in the process.This paper adopts an analysis pattern which complex theoretical analysis and empirical analysis. Based on the data from2007to2013, we excludes financial agents and real estate’s data, and then gets our final data. For the research of underwriter reputation, the paper builds an index------SPE. SPE, which based on M-W method, uses underwriters’ market share of sum and amount, and gives them equal weights for getting the index. This paper uses dummy variable to weight underwriting succession.This paper uses yield spread as the proxy of cost for corporate bonds. The results show that, underwriter reputation could influence the cost of corporate bonds. In other words, underwriters which get higher reputation would thrift cost of corporate bond for listed companies. Meanwhile, with competition of underwriters, underwriting succession could increase the cost of corporate bonds.The main significance and innovation lie in the following two aspects. Firstly, this paper uses underwriter reputation from IPO underpricing to cost of corporate bonds, thus provides a new aspect for cost of corporate bonds. Secondly, this paper suggests the concept of underwriting succession, thus provides a new perspective for cost of corporate bond.