Debt IPO Waves

Abstract

We examine aggregate volume of straight debt IPOs issued by nonfinancial firms over an extended period of 1970 to 2010. We find that aggregate debt IPO activities display wave patterns. Similar to equity IPOs, both the number and total proceeds of debt IPOs vary substantially over time. We explore possible explanations for the debt IPO waves with four groups of variables - capital market conditions, investor sentiment, information asymmetry, and interest rates. Our results indicate that debt IPO volume is significantly associated with term spread, stock return volatility and interest rates, suggesting that bond market conditions and information asymmetry play significant roles in explaining time variations in debt IPO volume. However, we do not find a significant role for investor sentiment. We also document that debt IPOs and equity IPOs are mutually Granger caused, suggesting that debt IPOs and equity IPOs tend to move together.