The Pricing of New Corporate Debt Issues

52 Pages Posted: 20 Oct 2020 Last revised: 15 Jan 2021

See all articles by Kelly Nianyun Cai

Kelly Nianyun Cai

University of Michigan at Dearborn - School of Management

Kathleen Weiss Hanley

Lehigh University - College of Business

Alan Guoming Huang

University of Waterloo

Xiaofei Zhao

Georgetown University - Robert Emmett McDonough School of Business

Date Written: September 26, 2020

Abstract

Using computational linguistics, we examine whether risk factor disclosure in the offering prospectus provides unique information in the pricing of initial public offerings of bonds. Both credit ratings and initial yields are related to risks that discuss the financial condition of the firm, its indebtedness, covenants, and repayment. Aftermarket yields are more sensitive to risk when traded in the Rule 144A private market than in the publicly-traded market. However, the effect of disclosure on bond outcomes is similar for both public and private firms in either market. Thus, mandated disclosure provides valuable information to both public and private market participants.

Keywords: Debt IPO, Risk Factor, Topic Analysis, Credit Risk, Textual Analysis

JEL Classification: G0

Suggested Citation

Cai, Kelly Nianyun and Hanley, Kathleen Weiss and Huang, Alan G. and Zhao, Xiaofei, The Pricing of New Corporate Debt Issues (September 26, 2020). Georgetown McDonough School of Business Research Paper No. 3700162, Available at SSRN: https://ssrn.com/abstract=3700162 or http://dx.doi.org/10.2139/ssrn.3700162

Kelly Nianyun Cai

University of Michigan at Dearborn - School of Management ( email )

19000 Hubbard Dr.
Dearborn, MI 48126
United States

Kathleen Weiss Hanley

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Alan G. Huang

University of Waterloo ( email )

School of Accounting and Finance
Waterloo, Ontario N2L 3G1
Canada
519-888 4567 ext. 36770 (Phone)

Xiaofei Zhao (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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