Risk Disclosure and the Pricing of Corporate Debt Issues in Private and Public Markets

50 Pages Posted: 20 Oct 2020 Last revised: 15 Mar 2022

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 - McDonough School of Business

Date Written: March 14, 2022

Abstract

We exploit the unique features of the Rule 144A exchange bond market, identical bonds with similar disclosure, first issued in the Rule 144A private market and then registered and traded in the public market, to examine whether risk disclosure is informative for the pricing of debt offerings. We find that the offering terms in the private primary market, the credit rating and the offering's initial yield spread, are related to risks disclosed in the registration statement. Secondary market yield spreads are more sensitive to risk disclosures when the bond is traded in the public market than in the Rule 144A private market. However, the effect of disclosure on bond outcomes is similar for both SEC-registered (public) and private firms. Our findings suggest regulatory requirements and legal restrictions on disclosure in the public market can spillover into the private market.

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, Risk Disclosure and the Pricing of Corporate Debt Issues in Private and Public Markets (March 14, 2022). 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 - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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