The Costs and Determinants of International Capital Raising: Evidence from Yankee and Eurodollar Corporate Bond Offerings

This paper examines the costs and determinants of international capital raising for a sample of 427 straight public debt issues made by non-U.S. firms in the U.S. (Yankee) and Eurodollar markets. We model the joint determination of market choice and interest costs using a switching regression model with endogenous switching. We find that firms issue bonds in the highly regulated U.S. market when the estimated interest cost is low relative to the Eurodollar market. Firms issuing Yankee bonds are more likely to be located in countries that require transparent accounting standards, protect creditor rights, and have strong traditions of law and order. Further, we find that investors are willing to pay higher prices for Yankee bonds issued by firms that have previously met U.S. registration and reporting requirements. Our analysis provides new insights into why foreign firms choose a particular market to raise debt capital, and how relative interest costs, disclosure requirements, creditor protections, and contract characteristics drive the decision. We would like to thank Vihang Errunza, Steve Forester, Ro Gutierrez, Philippe Jorion for helpful comments and suggestions. We thank Hwan Shin for help with the data. We also thank the Center for International Business Studies at Texas A&M University for financial support. We especially thank Laura Field for suggestions that have improved the quality of the paper. The usual disclaimer applies.