The market reaction to Yankee and Rule 144A bond offerings

• The market reaction to Yankee and Rule 144a bond offerings is more negative.
• Riskier securities are associated with a more negative valuation effect.
• Better quality of a country’s legal system reduces the underperformance.

This study investigates the short- and long-term stock price reactions to Yankee and Rule 144a bond offerings. Matching 399 corporate bonds issued by foreign firms in the U.S. Yankee and Rule 144a bond markets with 399 U.S. domestic bonds for the period of 1989–2013, we find that the market reactions to Yankee and Rule 144a bond offerings are more negative than those to U.S. domestic bonds in the short- and long-term. The results are robust to subsample analyses and the use of different matching criteria. This is consistent with the notion that riskier securities are associated with a more negative valuation effect (Myers, 1984). We further find that Yankee and Rule 144a bonds domiciled in a country with better institutional quality experience less negative returns. Our findings suggest that better quality of a country's legal system reduces the long-term stock return underperformance following Yankee and Rule 144a bond offerings.