The coefficients of change in control are significant and positive in models 4 and 5, indicating that put provisions are typically attached to riskier bonds. Initial public debt offers with put provisions carry an additional yield spread of 118.12 basis points, on average. As predicted, models 1 and 4 indicated that, after controlling for other factors, the greater the firm's reputation, the lower the at-issue yield spread for external debt. Because we used the natural logarithm of one plus the time lag between the equity initial public offering and the bond offer, our finding indicates a nonlinear, negative relation between the firm's reputation and the at-issue yield spread. In Models 3 and 5, we found that the strength of the banking relationship has a significant negative influence on the cost of initial public debt capital.
Median values are in parentheses.
Relative offer size is defined as the offer size divided by the total assets at the year-end preceding the offer. Total assets represent book value of total assets at year-end prior to offer year. Investment grade issues are those with a Standard and Poor's BBB rating or better. Subordination status indicates that the bond issue is subordinate to bank debt, other types of private debt, and any future nonsubordinated issues.