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The cost of debt for Yankee and domestic bonds

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  • Cai, Kelly

Abstract

This paper compares the cost of debt for corporate bonds issued by foreign firms (Yankee bonds) and by U.S. firms (domestic bonds) in the U.S. market. By using a sample of 2445 Yankee bond from 68 countries for the 1991–2014 period, I find that better country-level governance offsets the impact of asymmetric information on the cost of debt. Yankee bonds domiciled in countries with higher protection and law enforcement have a significantly lower cost of debt than comparable domestic bonds. On the other hand, for foreign firms domiciled in countries with worse control on self-dealing, the cost of debt is higher than that for domestic firms due to higher asymmetric information. Further findings suggest that the yield spread is significantly reduced for Yankee bonds that are from countries with better country-level governance.

Suggested Citation

  • Cai, Kelly, 2017. "The cost of debt for Yankee and domestic bonds," Journal of Multinational Financial Management, Elsevier, vol. 40(C), pages 1-13.
    • Handle: RePEc:eee:mulfin:v:40:y:2017:i:c:p:1-13
    DOI: 10.1016/j.mulfin.2017.05.005
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    More about this item

    Keywords

    Cost of debt; Yankee bonds; Information asymmetry;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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