We empirically study how inventory constraints of underwriters affect corporate bond offerings. Using underwriter-insurer-level transaction data, we find that a more constrained underwriter is more likely to place a bond and increases the allocation in the primary market to an insurer with a stronger preexisting relationship. The same underwriter is also more likely to buy back part of an allocation from the same insurer within 6 to 12 months after an offering. Overall, by “parking” inventory to relationship investors in the primary market, underwriters mitigate the effect of their inventory constraints on firms’ bond financing costs. (JEL G12, G32)

We show that the effect of regulation on credit rating informativeness depends on asset complexity. Using the Dodd-Frank Act as a shock to the rating industry, we analyze the impact of rating changes on market prices, conditioning on various measures of complexity. Rating informativeness improves after Dodd-Frank, but not for assets with high complexity. Our results are robust to alternative measures of informativeness and provide strong evidence that the impact of regulation varies in the cross-section of securities. Our findings are consistent with models combining rating shopping with rating agencies that strategically decide on information acquisition and rating inflation. (JEL, G12, G32) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

ABSTRACT The response of corporate bond credit spreads to three exogenous macro shocks—oil supply, investment‐specific technology, and government spending—is large, significant, and a mirror image of macroeconomic activity. This countercyclicality is driven largely by credit risk premia and translates into significant return predictability. Equity risk premia exhibit similar responses, providing external validity. Information rigidities and leverage play a key role in the transmission of the shocks. Since causal evidence linking macro shocks to credit markets is scarce and recent work highlights the real effects of credit fluctuations, our findings contribute to understanding the joint dynamics of credit markets and the macroeconomy.