The Pricing of Initial Public Offers of Corporate Straight Debt

Authors

  • SUDIP DATTA,

  • MAI ISKANDAR-DATTA,

  • AJAY PATEL

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    • Datta is from the Department of Finance, Bentley College. Iskandar-Datta is from the Department of Accounting and Finance, University of Massachusetts-Dartmouth. Patel is from the Babcock School, Wake Forest University. We thank John Finnerty, Susan Jordan, René Stulz (the editor), an anonymous referee, and seminar participants at Loyola University of Chicago and Wake Forest University. We are also grateful to the participants at the Financial Management Association, the Southern Finance Association, and the French Finance Association meetings for helpful comments.


ABSTRACT

This study examines the initial-day and aftermarket price performance of corporate straight debt IPOs. We find that IPOs of speculative grade debt are underpriced like equity IPOs, while those rated investment grade are overpriced. IPOs of investment grade debt are typically issued by firms listed on the major exchanges and underwritten by prestigious underwriters. In contrast, junk bond IPOs are more likely to be handled by less prestigious underwriters and are typically issued by OTC firms. Our analysis also reveals that bond rating, market listing of the firm, and investment banker quality are significant determinants of bond IPO returns.

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