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The Costs, Wealth Effects, and Determinants of International Capital Raising: Evidence from Public Yankee Bonds

  • Darius P. Miller
  • John J. Puthenpurackal
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    This paper examines the costs, wealth effects, and determinants of international capital raising for a sample of 260 public debt issues made by non-U.S. firms in the U.S. (Yankee) market. We find that investors demand economically significant premiums on bonds issued by firms that are located in countries that do not protect investors' rights and do not have a prior history of on-going disclosure. The results provide support for the literature that suggests better legal protections and more detailed information disclosure increases the price investors will pay for financial assets. We also find that the average stock price reaction to Yankee bond offerings is significantly positive and that abnormal returns are largest for first-time Yankee bond issuers. In addition, we show that foreign firms tend to issue in the Yankee market when the relative interest cost is low, indicating that potential differences in borrowing costs influence where firms choose to sell bonds.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp445.pdf
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    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 445.

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    Length: pages
    Date of creation: 01 Oct 2001
    Date of revision:
    Handle: RePEc:wdi:papers:2001-445
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    1. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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    11. Davide Lombardo & Marco Pagano, 1999. "Legal Determinants of the Return on Equity," CSEF Working Papers 24, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Dec 2000.
    12. John S. Hughes & Steven Huddart & Markus K Brunnermeier, 1998. "Disclosure Requirements and Stock Exchange Listing Choice in an International Context," FMG Discussion Papers dp282, Financial Markets Group.
    13. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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    15. 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.
    16. Eckbo, B. Espen, 1986. "Valuation effects of corporate debt offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 119-151.
    17. Finnerty, Joseph E. & Schneeweis, Thomas & Hegde, Shantaram P., 1980. "Interest Rates in the $Eurobond Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(03), pages 743-755, September.
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