Bond Fund Herding and Corporate Bond Issuance

ABSTRACT We investigate whether the herding behaviour of bond funds influences corporate bond issuance. Using quarterly data from 1998 to 2018, we find that only buy herding significantly increases bond issuance activity. Further analysis supports an informational channel, suggesting that ‘investigative herding’ among funds enhances credit information efficiency more significantly than demand‐driven price impacts. Our main identification strategy employs an instrumental variable approach based on the share of inexperienced managers among fund bondholders.