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. Mostrecent research focuses on investment grade bonds and ignores non-investment grade bonds. Chapter 1investigates firms issuing high-yield debt and the impact on their stock price by identifying determinants ofthe negative abnormal return that surrounds the announcement of an issue in the short-run. It is learnedthe length, coupon payment and amount of the issue are significant in explaining the CAR as is the age ofthe firm, first-time issuers and the marketplace where its stock trades. Firm performance ratios includingthe current and total-asset-turnover ratio also have explanatory power. These determinants of the CARhave an explanatory power approaching 55%.Chapter 2 uses an ordinary least squares technique similar to Chapter 1 to capture determinantsof the pricing decision for high-yield bond offerings. I find the coupon amount, the years to maturity, bondsissued 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 isdetermined 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 postissuing 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 notissue stocks and\or bonds over the same 5-years post period. It is determined that stockunderperformance does exist following bond IBOs’ using both the Buy-and-Hold return and Fama-FrenchFour-Factor models. The level of underperformance is found to be greatest for callable bonds issuersfollowed by straight bonds and convertible bond issuers. Additionally, it is learned that high-yield bondissuing 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 thefirm in both stock performance and the pricing decision.