Title

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

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

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

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