Comment Letters, Connected Investors, and Corporate Bond Issuance

Using a proprietary data set that documents corporate bond issuances in China, we find that bond regulators’ comment letters (CLs) on issuers’ public disclosures generally target opaque firms and reduce bond issuance success. We also find, however, that connected investors—financial institutions with prior business relationships with the issuers—purchase a relatively larger share of bond issuances from CL recipients than from non-CL recipients, and this greater participation contributes to overpricing. Further analysis shows that connected investors support CL recipients because they possess superior private information and obtain private benefits from their connections. This paper was accepted by Ranjani Krishnan, accounting. Funding: R. Zhang acknowledges financial support from the Social Sciences and Humanities Research Council of Canada [Grant 31-R833984]. Supplemental Material: The internet appendix and data files are available at https://doi.org/10.1287/mnsc.2024.07607 .