Do multiple credit ratings reduce money left on the table? Evidence from U.S. IPOs

Marc Goergen; Dimitrios Gounopoulos; Panagiotis Koutroumpis

doi:10.1016/j.jcorpfin.2021.101898

Do multiple credit ratings reduce money left on the table? Evidence from U.S. IPOs

Marc Goergen, Dimitrios Gounopoulos, Panagiotis Koutroumpis

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Abstract

Using credit ratings as an uncertainty-reducing mechanism, we provide evidence of the beneficial impact of multiple credit ratings on reducing IPO underpricing and filing price revision. We find that the acquisition of multiple ratings in the pre-IPO period mitigates uncertainty more than the acquisition of a single rating. Multi-rated firms also have higher probabilities of survival than those with a single rating, whereas credit rating levels matter only for IPOs with more than one rating. The IPOs that are awarded the first rating on the borderline between investment and non-investment grades are more likely to seek an additional rating.

Original language	English
Article number	101898
Number of pages	59
Journal	Journal of Corporate Finance
Volume	67
Early online date	12 Jan 2021
DOIs	https://doi.org/10.1016/j.jcorpfin.2021.101898
Publication status	Published - 30 Apr 2021

Funding

We are grateful to Heng (Hunter) An, Bo Becker, Dion Bongaerts, Trevis Certo, Kam C. Chan, Thomas Chemmanur, Mark Clatworthy, Gonul Colak, Jess Cornaggia, Fran?ois Derrien, Valentin Dimitrov, Xavier Freixas, William Goetzmann, John M. Griffin, Iftekhar Hasan, Ranko Jelic, Tim Jenkinson, Simi Kedia, Gopal Krishnan, Clive Lennox, Tim Loughran, David Marginson, Paul McGuinness, Christian Opp, Daniel Paravisini, Shivaram Rajgopal, Jay Ritter, Joel Shapiro, Chester Spatt, Jason Sturgess, Avanidhar (Subra) Subrahmanyam, Elias Tzavalis, Silvio Vismara, and Konstantinos E. Zachariadis for their helpful comments and suggestions. We would also like to thank seminar participants at the Universities of Bath, Birmingham, Cardiff, Sussex, Southampton, and Strathclyde, as well as participants at the Financial Management Association meetings (U.S.), the Financial Intermediation Research Society meetings, the European Financial Management Association (EFMA) Conference, the SEC, and the National Bureau of Economic Research Summer Institute for their valuable feedback. Special thanks go to Ekaterina Glebkina for her research assistance.

Funders	Funder number
European Financial Management Association
Financial Intermediation Research Society
National Bureau of Economic Research Summer Institute

Keywords

nitial public offerings (IPOs); credit ratings; IPO underpricing; survivorship

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10.1016/j.jcorpfin.2021.101898

Goergen et al. - Dec 2020 resubmission (accepted author manuscript)Accepted author manuscript, 1.62 MBLicence: CC BY-NC-ND

Cite this

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Do multiple credit ratings reduce money left on the table? Evidence from U.S. IPOs

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Keywords

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