Abstract

Debt initial public offerings ~IPOs! represent a major shift in a firm’s financing policy by both extending debt maturity and altering the public-private debt mix. In contrast to findings for seasoned debt offerings, we document a significantly negative stock price response to debt IPO announcements. This result is consistent with debt maturity and debt ownership structure theories. The equity wealth effect is negatively related to the offer’s maturity, and positively related to the degree of bank monitoring. We find that firms with less information asymmetry and firms with higher growth opportunities experience a less adverse stock price response. The decision to access the public debt market for the first time represents a major change in a firm’s financing policy. An initial public debt offer alters the firm’s debt structure in two significant ways. Not only does this policy choice affect the firm’s debt ownership structure, by altering its mix of public relative to private debt, but it also extends the average debt maturity of the firm substantially. This study provides empirical evidence on the validity of some important debt structure theories by focusing on the information content of initial public debt offers ~debt IPOs!. Two major strands of theories have evolved in the literature. The debt ownership choice theories model corporate choice of private and public debt mix ~see, e.g., Fama ~1985!, Diamond ~1991a!, and Rajan ~1992!!, while the other set of theories models corporate debt maturity choice ~Easterbrook ~1984!, Flannery ~1986!, and Kale and Noe ~1990!!. A number of recent studies empirically test some of the predictions of these models ~Barclay and

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