Competitive versus Negotiated Underwriting of Public Utility Debt

Dyl, Edward A.; Joehnk, Michael D.

doi:10.2307/3003280

Cited by 26 publications

(18 citation statements)

References 9 publications

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“…The significantly negative coefficients for bond rating in the spread equation indicate that ceteris paribus , as the bond quality rises, the underwriting spread decreases. This result is consistent with Dyl and Joehnk's (1976) conclusion that higher rated issues are easier to market and, therefore, the risk to the underwriter is less. Furthermore, the lack of significance for bond rating in the yield equation indicates that these factors are not reflected in the bond pricing.…”

Section: Resultssupporting

confidence: 91%

“…If the issue were overpriced, a downside price break would be needed to sell the issue, and the underwriters might bear a sizable loss. Dyl and Joehnk (1976) suggest that the tendency to underprice is complicated further by the stigma of a possible offering failure among investment banking syndicates. An examination of the composition of underwriting syndicates indicates also that a relatively small number of investment bankers dominate convertible debt underwriting.…”

Section: Model and Methodologymentioning

confidence: 99%

“…Certain variables are excluded in this study. The issue of the relative costs between competitive bid and negotiated offerings (Cohan, 1961, Dyl and Joehnk, 1976, and Tallman et al, 1974) cannot be examined for convertible debt because substantially all offerings are negotiated. Logue (1973) finds that the level of investment banker prestige affects the pricing process for new issue equity offerings.…”

Section: Model and Methodologymentioning

confidence: 99%

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The Interaction Between Pricing and Underwriting Spread in the New Issue Convertible Debt Market

Stover

1983

J of Financial Research

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The objective of this research is to measure the interaction among pricing variables in new issues of convertible debt. In underwriting convertible debt issues, there is a simultaneous tradeoff among the conversion premium, yield, and underwriting spread. Since the three endogenous variables are interrelated, a simultaneous equation model is used to test for this interaction. Based on a sample of 264 new convertible debt offerings, the results indicate underpricing in terms of conversion premium and yield as well as simultaneous increases in yield and underwriting spread.

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Section: Resultssupporting

confidence: 91%

Section: Model and Methodologymentioning

confidence: 99%

Section: Model and Methodologymentioning

confidence: 99%

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The Interaction Between Pricing and Underwriting Spread in the New Issue Convertible Debt Market

Stover

1983

J of Financial Research

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“…In a number of the early studies of the relationship between issuer costs and offering methods, authors [1,2,3,9] argued that whether competitive bid?…”

Section: Initial Regression Resultsmentioning

confidence: 99%

Negotiated Versus Competitive Underwritings of Public Utility Bonds: Just One More Time

Fabozzi¹,

West²

1981

The Journal of Financial and Quantitative Analysis

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“…Another recent paper on utility debt, by Dyl and Joehnk ( DJ ) [2], questioned some of the above results for competitive and negotiated offerings. They evaluated some 383 bonds issued between 1972 and 1974 in a general way, and then selected 32 paired issues for more detailed analysis.…”

Section: Prior Researchmentioning

confidence: 99%

An Analysis of the Flotation Cost of Utility Bonds, 1971–76

Findlay

Johnson

Morton

1979

J of Financial Research

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The ability of public utilities to raise the massive sums which will be needed to meet the nation's requirements for energy and communications will be affected critically by the efficiency of our primary market for money capital. Central to the question of market efficiency, which is of concern to all finance scholars, practitioners and regulators, is the flotation or issuance cost associated with new securities offerings of public utilities. This paper examines the efficiency of the primary market for utility debt securities issued publicly during the period January, 1971 through April, 1976. It seeks to identify the determinants of flotation costs for these issues. Previous studies, areas of inconsistency, and conventional wisdom are presented in establishing an efficient capital market framework for the study. I. Competition, Negotiation, and EfficiencyMost existing studies of capital market efficiency have dealt with the informational efficiency of the secondary market (i.e., transactions in outstanding securities). The primary, or new issues, market consists of transactions on at least two levels: the sale by the issuing firm to the underwriting group and then the resale by the latter to the investing public. Such empirical studies as have been done of the primary market have tended to lump these transactions together or else have concentrated upon the second (e.g., the underpricing of new issues, the hot issues phenomenon). A new issue generally involves the raising of funds for additional capital investment by the firm. A firm that seeks to maximize shareholder wealth and that operates in informationally efficient secondary markets will have released data about any windfalls associated with the investment budget prior to the sale of the new issue, such that the prices of the securities will contain an unbiased estimate of the net present value of the investment budget. What is then left to consider with respect to economic efficiency is the structure, conduct, and performance of the intermediation service provided. Issue cost studies, such as this paper and those discussed later, may be viewed as efforts to gauge the economic efficiency of the first stage of the primary market, or equivalently, the efficiency of the market for investment banker intermediation services. Since no complete theory of the investment banking firm has been forthcoming that is normatively derived and operational, all such studies are open to charges of being ad hoc to a greater or lesser extent.In the context of economic efficiency, the competitive versus negotiated issue debate seems to have been posed inappropriately. A particular service (i.e., a firm underwriting of bonds) would appear to be offered at a price to be determined in either of two ways at

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Competitive versus Negotiated Underwriting of Public Utility Debt

Cited by 26 publications

References 9 publications

The Interaction Between Pricing and Underwriting Spread in the New Issue Convertible Debt Market

The Interaction Between Pricing and Underwriting Spread in the New Issue Convertible Debt Market

Negotiated Versus Competitive Underwritings of Public Utility Bonds: Just One More Time

An Analysis of the Flotation Cost of Utility Bonds, 1971–76

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