Should underwriters be trusted? Reducing agency costs through primary market supervision

We examine the mandated introduction of a supervised auction framework within China's primary bond market. This regulatory intervention resulted in a substantial reduction in debt costs for Chinese Bond issuers, primarily attributed to the alleviation of agency conflicts between underwriters and issuers. Leveraging unique bidder-level data obtained from a lead underwriter, our study provides replicable tools to discern collusive bidding behavior. This sheds light on instances of artificially inflated bond yields, highlighting economically burdensome practices. Our findings can assist regulators, issuers, and investors engaged in unsupervised auction mechanisms. Our insights offer potential enhancements to regulatory frameworks and operational efficiency across various sectors, including securities issuance, construction projects, and procurement.

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Publication Details

Journal
The British Accounting Review
Published
2024-10-16
DOI
https://doi.org/10.1016/j.bar.2024.101510
Citations
3
Primary Topic
Credit Risk and Financial Regulations
Type
article
Field-Weighted Citation Impact
1.08
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article

Should underwriters be trusted? Reducing agency costs through primary market supervision

Sean Foley, Xiaolu Hu, Haozhi Huang, Jiang Li
3 citations
The British Accounting Review
Credit Risk and Financial Regulations
1.08
article

Should underwriters be trusted? Reducing agency costs through primary market supervision

Sean Foley, Xiaolu Hu, Haozhi Huang, Jiang Li
article en
3 citations

Abstract

We examine the mandated introduction of a supervised auction framework within China's primary bond market. This regulatory intervention resulted in a substantial reduction in debt costs for Chinese Bond issuers, primarily attributed to the alleviation of agency conflicts between underwriters and issuers. Leveraging unique bidder-level data obtained from a lead underwriter, our study provides replicable tools to discern collusive bidding behavior. This sheds light on instances of artificially inflated bond yields, highlighting economically burdensome practices. Our findings can assist regulators, issuers, and investors engaged in unsupervised auction mechanisms. Our insights offer potential enhancements to regulatory frameworks and operational efficiency across various sectors, including securities issuance, construction projects, and procurement.

The British Accounting ReviewVol. 57(3)
China Shenhua Energy (China) (CN), RMIT University (AU), Macquarie University (AU)
Openalex Percentile: Top 20%
Credit Risk and Financial Regulations
1.08
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Should underwriters be trusted? Reducing agency costs through primary market supervision — Sean Foley, Xiaolu Hu, et al. · The British Accounting Review (2024) | TGRS Research Map | TGRS