IDEAS home Printed from https://ideas.repec.org/a/eee/mulfin/v34y2016icp1-17.html
   My bibliography  Save this article

The market reaction to Yankee and Rule 144A bond offerings

Author

Listed:
  • Cai, Kelly Nianyun
  • Zhu, Hui

Abstract

This study investigates the short- and long-term stock price reactions to Yankee and Rule 144a bond offerings. Matching 399 corporate bonds issued by foreign firms in the U.S. Yankee and Rule 144a bond markets with 399 U.S. domestic bonds for the period of 1989–2013, we find that the market reactions to Yankee and Rule 144a bond offerings are more negative than those to U.S. domestic bonds in the short- and long-term. The results are robust to subsample analyses and the use of different matching criteria. This is consistent with the notion that riskier securities are associated with a more negative valuation effect (Myers, 1984). We further find that Yankee and Rule 144a bonds domiciled in a country with better institutional quality experience less negative returns. Our findings suggest that better quality of a country's legal system reduces the long-term stock return underperformance following Yankee and Rule 144a bond offerings.

Suggested Citation

  • Cai, Kelly Nianyun & Zhu, Hui, 2016. "The market reaction to Yankee and Rule 144A bond offerings," Journal of Multinational Financial Management, Elsevier, vol. 34(C), pages 1-17.
    • Handle: RePEc:eee:mulfin:v:34:y:2016:i:c:p:1-17
    DOI: 10.1016/j.mulfin.2015.11.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042444X15300098
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.mulfin.2015.11.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    3. Miller, Darius P. & Puthenpurackal, John J., 2005. "Security Fungibility and the Cost of Capital: Evidence from Global Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(4), pages 849-872, December.
    4. Lewis, Craig M. & Rogalski, Richard J. & Seward, James K., 2001. "The long-run performance of firms that issue convertible debt: an empirical analysis of operating characteristics and analyst forecasts," Journal of Corporate Finance, Elsevier, vol. 7(4), pages 447-474, December.
    5. Hui Zhu & Kelly Cai, 2014. "Cultural Distance And Bond Pricing: Evidence In The Yankee And Rule 144a Bond Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(3), pages 357-384, September.
    6. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    7. Eckbo, B. Espen, 1986. "Valuation effects of corporate debt offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 119-151.
    8. Ilia D. Dichev & Joseph D. Piotroski, 1999. "The Performance of Long-run Stock Returns Following Issues of Public and Private Debt," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(9-10), pages 1103-1132.
    9. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    10. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
    11. Datta, Sudip & Iskandar-Datta, Mai & Raman, Kartik, 2000. "Debt Structure Adjustments and Long-Run Stock Price Performance," Journal of Financial Intermediation, Elsevier, vol. 9(4), pages 427-453, October.
    12. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    13. Yu Gao, 2011. "The Sarbanes‐Oxley Act and the Choice of Bond Market by Foreign Firms," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 49(4), pages 933-968, September.
    14. Miller, Merton H & Rock, Kevin, 1985. "Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
    15. Miller, Darius P. & Puthenpurackal, John J., 2005. "Security fungibility and the cost of capital: evidence from global bonds," Working Paper Series 426, European Central Bank.
    16. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2010. "Disclosure by Politicians," American Economic Journal: Applied Economics, American Economic Association, vol. 2(2), pages 179-209, April.
    17. Ilia D. Dichev & Joseph D. Piotroski, 1999. "The Performance of Long‐run Stock Returns Following Issues of Public and Private Debt," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(9‐10), pages 1103-1132, November.
    18. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    19. Miller, Darius P. & Puthenpurackal, John J., 2002. "The Costs, Wealth Effects, and Determinants of International Capital Raising: Evidence from Public Yankee Bonds," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 455-485, October.
    20. Dann, Larry Y. & Mikkelson, Wayne H., 1984. "Convertible debt issuance, capital structure change and financing-related information : Some new evidence," Journal of Financial Economics, Elsevier, vol. 13(2), pages 157-186, June.
    21. Sudip Datta & Mai Iskandar‐Datta & Ajay Patel, 2000. "Some Evidence on the Uniqueness of Initial Public Debt Offerings," Journal of Finance, American Finance Association, vol. 55(2), pages 715-743, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paul-Olivier KLEIN, 2017. "Do Shareholders Value Bond Offerings? A Meta-Analysis," Working Papers of LaRGE Research Center 2017-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    2. Grossmann, Axel & Ngo, Thanh, 2025. "The stock market reaction to bond refinancing issues with and without senior debt," Journal of Corporate Finance, Elsevier, vol. 91(C).
    3. Song Han & Alan G. Huang & Madhu Kalimipalli & Ke Wang, 2018. "Information and Liquidity of OTC Securities : Evidence from Public Registration of Rule 144A Bonds," Finance and Economics Discussion Series 2018-061, Board of Governors of the Federal Reserve System (U.S.).
    4. Abhyankar, Abhay & Ho, Keng-Yu, 2006. "Long-run abnormal performance following convertible preference share and convertible bond issues: New evidence from the United Kingdom," International Review of Economics & Finance, Elsevier, vol. 15(1), pages 97-119.
    5. Öztekin, Özde & Flannery, Mark J., 2012. "Institutional determinants of capital structure adjustment speeds," Journal of Financial Economics, Elsevier, vol. 103(1), pages 88-112.
    6. Klein, Paul-Olivier & Weill, Laurent, 2015. "Is it worth issuing bonds in China? Evidence from stock market reactions," BOFIT Discussion Papers 33/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    7. Huang, Alan G. & Kalimipalli, Madhu & Nayak, Subhankar & Ramchand, Latha, 2019. "Risk mitigation by institutional participants in the secondary market: Evidence from foreign Rule 144A debt market," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 202-221.
    8. Hüttenbrink, Alexander & Oehmichen, Jana & Rapp, Marc Steffen & Wolff, Michael, 2014. "Pay-for-performance – Does one size fit all? A multi-country study of Europe and the United States," International Business Review, Elsevier, vol. 23(6), pages 1179-1192.
    9. An, Zhe & Li, Donghui & Yu, Jin, 2016. "Earnings management, capital structure, and the role of institutional environments," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 131-152.
    10. Hui Zhu & Kelly Cai, 2014. "Cultural Distance And Bond Pricing: Evidence In The Yankee And Rule 144a Bond Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(3), pages 357-384, September.
    11. Jing Zhou & On Kit Tam & Wei Lan, 2016. "Solving agency problems in Chinese family firms – A law and finance perspective," Asian Business & Management, Palgrave Macmillan, vol. 15(1), pages 57-82, February.
    12. Kusnadi, Yuanto & Wei, K.C. John, 2011. "The determinants of corporate cash management policies: Evidence from around the world," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 725-740, June.
    13. Qi, Yaxuan & Roth, Lukas & Wald, John K., 2010. "Political rights and the cost of debt," Journal of Financial Economics, Elsevier, vol. 95(2), pages 202-226, February.
    14. April M. Knill, 2013. "Does Foreign Portfolio Investment Reach Small Listed Firms?," European Financial Management, European Financial Management Association, vol. 19(2), pages 251-303, March.
    15. Karim, Mohammad A & Sarkar, Sayan & Zhang, Shaorong, 2016. "Earnings management surrounding M&A: Role of economic development and investor protection," Advances in accounting, Elsevier, vol. 35(C), pages 207-215.
    16. Cumming, Douglas & Knill, April & Richardson, Nela, 2015. "Firm size and the impact of securities regulation," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 417-442.
    17. Steen Thomsen & Frederik Vinten, 2014. "Delistings and the costs of governance: a study of European stock exchanges 1996–2004," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(3), pages 793-833, August.
    18. Li, Hui & Liu, Hong & Siganos, Antonios, 2016. "A comparison of the stock market reactions of convertible bond offerings between financial and non-financial institutions: Do they differ?," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 356-366.
    19. Ruben Arrondo & Silvia Gomez-Anson, 2003. "A study of Spanish firms' security issue decision under asymmetric information and agency costs," Applied Financial Economics, Taylor & Francis Journals, vol. 13(10), pages 771-782.
    20. Chen, Kevin C.W. & Chen, Zhihong & Wei, K.C. John, 2009. "Legal protection of investors, corporate governance, and the cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 15(3), pages 273-289, June.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mulfin:v:34:y:2016:i:c:p:1-17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/mulfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.