Equity cross-listings in the U.S. and the price of debt

Abstract

Using a large panel from 46 countries over 20 years, we find that non-U.S. firms issue corporate bonds more frequently and at lower offering yields following an equity cross-listing on a U.S. exchange. Firms issue more bonds through public offerings instead of private placements and in foreign markets rather than at home, in both cases at significantly lower yields. Moreover, the debt-related benefits are concentrated among firms domiciled in countries with less private benefits of control, efficient debt enforcement, and developed bond markets, suggesting that equity cross-listings cannot completely offset the impact of weak home country institutions. The results support the notion that the monitoring, transparency, and visibility benefits brought about by equity cross-listings on U.S. exchanges are valuable to bond investors. JEL classification: F34, G12, G15, G38, K22

Does mandatory IFRS adoption facilitate debt financing?

“…Similarly, b 3 is expected to be positive if voluntary adopters also benefit from the mandating of IFRS, possibly because of comparability externalities. 9 In line with prior literature, we include the following determinants expected to be associated with debt access: Size, Tangibility, and Market to Book to proxy for information asymmetries, flotation costs, and growth opportunities, respectively (Denis and Mihov 2003;Bharath et al 2008); Leverage, Ohlson's O-Score, Investment Grade, and Rated to control for borrowers' credit quality and the probability of default (Denis and Mihov 2003;Bharath et al 2008;Ball et al 2013); ROA, Returns, and Returns Variability to control for firm performance and firm risk (Kim et al 2011;Ball et al 2013); Capital Market Access to proxy for financing needs (Bharath et al 2008;Dhaliwal et al 2011); and US GAAP to control for implementation of an alternative set of high quality accounting standards (Daske et al 2008). We also include GDP Growth and Country Rating to control for potentially time-varying country-level factors.…”

“…Since debt issues by the same firm may have different contractual terms, we perform an issue-level analysis that includes multiple debt issues by the same firm within 1 year (e.g., Kim et al 2011;Ball et al 2013). Using single equation models, we first estimate Eq.…”

“…These include firm-specific variables that capture observable characteristics of firms' default risk: Size, Tangibility, Leverage, Market to Book, O-Score, Investment Grade, Rated, Current Ratio, ROA, Returns, and Return Variability (Bharath et al 2008;Ball et al 2013;Baghai et al 2014). We also control for issue-specific characteristics that are systematically related to debt pricing.…”

“…Using several company identifiers (i.e., ISIN, CUSIP, and ticker symbol) and company name, we successfully match 11,678 bond issues to Worldscope (62.5 % of total bonds by listed firms included in SDC). In line with prior studies (e.g., Bharath et al 2008;Ball et al 2013), we exclude convertible bonds and bonds with callable features. For the access to debt analysis, we obtain a final sample comprising of 2346 unique Worldscope firms issuing 4676 bonds (excluding multiple bond issues by the same firm within 1 year).…”

“…The sample selection process of Dealscan and SDC Platinum may be of potential concern. Both provide comprehensive coverage of corporate global debt, but their data collection procedures may be skewed toward US, larger firms and, in the case of Dealscan, perhaps toward larger loans (Strahan 1999;Roberts and Sufi 2009;Ball et al 2013). Clearly, SDC Platinum will include larger firms, which are more likely to issue bonds.…”