Lifting the Veil: The Price Formation of Corporate Bond Offerings

Using newly available data on initial prices, this study is the first to analyze the price updating process associated with corporate bond (CB) offerings. Similar to the case for equity IPOs, the evidence shows that bookbuilding theories help explain the CB offering price. In particular, CB price updates reduce underwriters' pricing errors. The partial adjustment phenomenon exists, and underwriters propose a lower initial price in cases of greater uncertainty. However, the CB price update has a large mean value and is smaller for lower-rated offerings, indicating that part of the CB price update is unrelated to investors' information production.