Does having a credit rating leave less money on the table when raising capital? A study of credit ratings and seasoned equity offerings in China
Document Type
Journal article
Source Publication
Pacific Basin Finance Journal
Publication Date
4-1-2013
Volume
22
First Page
88
Last Page
106
Publisher
Elsevier BV
Keywords
Seasoned equity offerings, Credit rating, Information asymmetry
Abstract
We examine the impact of unsolicited credit ratings on seasoned equity offering (SEO) underpricing in China using issuer credit rating data of listed companies on the Shanghai and Shenzhen Stock Exchanges for the period 2002 to 2009. Our findings suggest that, after controlling for other factors, a SEO firm in China with a credit rating is able to reduce its SEO underpricing, on average, by 11.89% to 14.33%. In addition, we find that the underpricing of an SEO firm that receives a speculative-grade credit rating is not significantly different from an SEO firm with an investment-grade rating. Thus, SEO firms appear to benefit from receiving an unsolicited rating. In general, credit ratings reduce information asymmetry and hence leave less money on the table when raising capital. This may lead firms to actively solicit credit ratings in the future, especially those who plan to access the capital markets.
DOI
10.1016/j.pacfin.2012.10.003
Print ISSN
0927538X
Funding Information
Poon acknowledges a research grant from the Research and Postgraduate Studies Committee of Lingnan University, Hong Kong and Firth acknowledges a research grant from the Government of the HKSAR (LU340610).
Publisher Statement
Copyright © 2012 Elsevier B.V.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Poon, W. P. H., Chan, K. C., & Firth, M. A. (2013). Does having a credit rating leave less money on the table when raising capital? A study of credit ratings and seasoned equity offerings in China. Pacific-Basin Finance Journal, 22, 88-106. doi: 10.1016/j.pacfin.2012.10.003