The Disclosure Cost of SEC Registration and Market Unraveling: Evidence From Rule 144A and Yankee Bond Issues

• In Event: International Accounting Research

Abstract

Theory predicts that investors react negatively when firms withhold disclosure. I test this theory in the U.S. market for foreign bonds, where firms can choose to register their bond issues with the SEC. Using a recent rule change to allow IFRS filings without reconciliation to U.S. GAAP as an exogenous shock to the registration costs of foreign firms, I find evidence consistent with the `unraveling' hypothesis: foreign bonds from IFRS countries are not only more likely to register with the SEC, but investors demand higher cost of capital and issue lower credit ratings for those that don't. The study contributes to our understanding of how disclosure regulation affects foreign firm financing decisions in the United States, in particular the decision to register with the SEC.

Author

• Andrew Stephen McMartin, Texas A&M University