Risk and Pricing on the Italian Minibond Market

The Italian Minibond market was born in 2013 and was expected to ease debt financing of SMEs as a complementary channel to bank credit. In this chapter, we investigate what were the determinants of the issuing prices of Minibonds in the ExtraMotPro market from 2013 to 2016, with a special focus on small listings by nonfinancial issuers and on default risk. We find evidence that the rating of Minibond issuers by credit rating agencies did not help investors reduce information asymmetries about their creditworthiness. Investment grade. Minibonds had credit-risk premia similar to speculative grades’ and higher than those of non-rated issues. We evaluate the credit standing of issuers through a statistical and a financial approach. In both cases, we find that issuers rated as investment grade by agencies are generally riskier than those rated speculative grade. Furthermore, the premia related to our credit-risk assessment are higher for riskier firms than for safer firms. However, we also find evidence that safer borrowers might have signaled their quality to investors through underpricing. Our evidence calls for interventions aimed at improving the information efficiency of the Italian Minibond market.