Abstract
We examine the impact of credit ratings on long-term IPO pricing. Our findings suggest that the provision of credit ratings prior to IPO reduces information asymmetry and improves market efficiency. The increase in disclosure through credit ratings can reduce information risk and price discounts. IPOs with (without) credit ratings are less (more) underpriced and more positively (negatively) perceived by outside investors. The market reactions for rated IPOs are more immediate and more complete (as the result of improved transparency), while long-term performance is insignificant when information asymmetry is reduced.
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Notes
We thank Heng An for the information.
Value-weighted and equal-weighted returns are similar in most cases, while most equal-weighted results are statistically insignificant.
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Chan, K.C., Lo, Y.L. Credit ratings and long-term IPO performance. J Econ Finan 35, 473–483 (2011). https://doi.org/10.1007/s12197-010-9137-8
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DOI: https://doi.org/10.1007/s12197-010-9137-8