Risk Disclosure and the Pricing of Corporate Debt Issues in Private and Public Markets
56 Pages Posted: 20 Oct 2020 Last revised: 24 Jan 2024
Date Written: November 27, 2023
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 of credit rating and initial yield spread in the private primary market are related to risks disclosed in the registration statement. Secondary market spreads are more sensitive to risk disclosures when the bond is traded in the public market than in the private market. There are no discernible differences in the effect of risk disclosure on primary market pricing outcomes for public and private firms, nor on changes in trading yields once the bonds are registered. 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: Suggested Citation