Credit Supply and the Real Effects of Capital Raising

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

Eddie Zhao

Topic: Credit Supply and the Real Effects of Capital Raising: Evidence from Upsized Corporate Bond Offerings

Speaker: Yijia (Eddie) Zhao, University of Massachusetts Boston

Abstract: This paper studies how investors’ demand (i.e., credit supply) affects corporate bond offering outcomes and shapes firm financing and investment policies. We document that issuers often increase the offering amount (“upsize”) after underwriters collect information on investors’ demand during bookbuilding. This phenomenon is particularly common in the high yield market, where 34% of offerings are upsized by on average 30% of the originally announced issue size. Investment-grade (IG) bonds that appeal to investors’ reaching-for-yield are more likely to be upsized, while safer high-yield (HY) offerings are more commonly upsized. While firms use the upsized amount to reduce bank debt and increase cash holdings, upsizing is associated with higher overall leverage increases only for IG offerings. HY issuers with upsized offerings and higher growth opportunities increase investment. Our issuer-level evidence suggests these favorable realizations of credit supply impact corporate behavior but are not associated with excessive leverage or overinvestment for firms with the greatest risk of default.

Moderator: Thomas Matthys, University of Technology Sydney

Date: Wednesday, 25th August 2021
Time: 9-10 am (Australian Eastern Standard Time)
Venue: This is on online Zoom webinar.

Seminar protocols:

  • The webinar will run for 45 minutes, followed by a 15 minute Q&A session.
  • There will be a moderator for each seminar event, who will facilitate communication and resolve any technical issues.
  • Participants can use the chat facility or raise their had to ask questions during the presentation. The moderator will then alert the speaker at the appropriate time and either ask the questions raised or unmute the participant so they can ask the question directly to the presenter.

Co-ordinator: Harry Scheule

Enquiries: Duncan Ford

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