Semester Award Granted

Summer 2025

Submission Date

July 2025

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Thesis/Dissertation Advisor [Chair]

Anna Agapova

Abstract

In this manuscript, I present two essays that examine the role of social connections in corporate bond pricing.

The first essay examines the effect of interlocking connections between investment banks and corporate executives or directors on bond underpricing and underwriting fees. Interlocking is associated with more accurate bond pricing, reflected in significantly lower excess initial returns on newly issued bonds. Specifically, interlocking reduces underpricing by 6.25-14.01 basis points, saving, on average, up to $935,000 per issuance cost. The reduction in underpricing is most pronounced for high-yield bonds and bond IPOs, where the financial expertise of interlocked investment banks is particularly valuable.

The second essay examines social connections between corporate bond underwriters and mutual fund families and their role in corporate bond pricing and allocation. It provides evidence that social connections are related to the allocation practices of underpriced bonds. The study utilizes the hand-collected data on the bond underwriter syndicate members obtained from Bloomberg. It identifies the educational and employment connections between underwriters’ and mutual fund management firms’ CEOs, CFOs, and COOs. The results indicate that the bonds with existing social connections are underpriced by 8.87%-9.23% compared to the average in the study’s sample, which is associated with an additional $347,661-$361,787 less capital received by the issuer. Socially connected fund families earn $1,552,547 extra first-day profits annually. The study suggests the existence of favoritism between underwriters and institutional investors, which leads to the agency problem between the underwriters and bond issuers.

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