What Influence the Impact of Underwriters’ Reputation on Coupon Rate of Bonds? Evidence from China Interbank Bond Market

Abstract

This paper studies the effect of underwriter reputation on coupon rate of bonds in China's inter-bank bond market and how this effect changes according to different credit ratings. This research finds that the improvement of the underwriter reputation can significantly reduce the coupon rate of bonds, and the higher the credit rating of the issuer, the more significant this effect is. This is mainly caused by the lack of junk bond market and the high risk-aversion level of investors in China’s market. Further research finds that the effect of the underwriter reputation on the coupon rate of bonds and its significant changes among different credit ratings only appears after the first substantial default cases occurred, and this phenomenon are more significant in short-term bonds comparing with long-term bonds.