ICEF/FES Job Market Seminar by Ruslan Sverchkov (University of Pennsylvania)
Speaker: Ruslan Sverchkov (University of Pennsylvania)Theme: "Selling to Investor Network: Allocations in the Primary Corporate Bond Market".
Abstract: I develop a model of the primary market for corporate bonds, in which an issueroptimally chooses an issuance price and allocations to investors based on their tradingconnections in the secondary over-the-counter market. Expected secondary marketliquidity, which depends on the structure of the trading network in this market, deter-mines investors’ demands in the primary market and, in turn, the issuer’s revenues. Ishow that trading by less connected investors has a relatively high negative impact onexpected secondary market liquidity and disproportionately reduces the demands of allinvestors in the primary market. As a result, the issuer can increase her profits by re-stricting allocations of new bonds only to more connected investors. This explains thecommonly observed exclusion of small institutional investors from the primary market,which is often coupled with seemingly underpriced bonds.