An Empirical Investigation into the Performance of High-Yield Bond Issuers

A vast amount of academic research focuses on how bond issuance impacts the firm. Most recent research focuses on investment grade bonds and ignores non-investment grade bonds. Chapter 1 investigates firms issuing high-yield debt and the impact on their stock price by identifying determinants of the negative abnormal return that surrounds the announcement of an issue in the short-run. It is learned the length, coupon payment and amount of the issue are significant in explaining the CAR as is the age of the firm, first-time issuers and the marketplace where its stock trades. Firm performance ratios including the current and total-asset-turnover ratio also have explanatory power. These determinants of the CAR have an explanatory power approaching 55%. Chapter 2 uses an ordinary least squares technique similar to Chapter 1 to capture determinants of the pricing decision for high-yield bond offerings. I find the coupon amount, the years to maturity, bonds issued for refinancing purposes and callable bonds are significant determinants in the spread at issuance. The exchange in where the firms stock trades and bullish market conditions are also of significance. It is determined these variables have roughly 52% explanatory power over the spread. Chapter 3 looks at long-run stock underperformance of high-yield bond IBOs' in the 3-5 year post issuing period compared to firms that do not issue stock and\or bonds over the same 5-year post period. A second dataset featuring investment grade bond issuing firms is also compared to firms that do not issue stocks and\or bonds over the same 5-years post period. It is determined that stock underperformance does exist following bond IBOs' using both the Buy-and-Hold return and Fama-French Four-Factor models. The level of underperformance is found to be greatest for callable bonds issuers followed by straight bonds and convertible bond issuers. Additionally, it is learned that high-yield bond issuing firms experience a greater level of underperformance than their investment-grade counterparts. This line of research partially fills the gap in understanding how non-investment grade bonds impacts the firm in both stock performance and the pricing decision.