Hidden Champions or Black Sheep? Evidence from German Mini-Bonds

47 Pages Posted: 2 Jul 2015

See all articles by Denis Schweizer

Denis Schweizer

Concordia University

Juliane Proelss

Concordia University, Quebec; Trier University of Applied Sciences

Mark Mietzner

Leipzig University of Applied Sciences - HTWK Leipzig

Date Written: June 30, 2015

Abstract

This paper presents a first empirical examination of all available German mini-bond offerings between 2010 and 2015. We compare the default probability according to a mini-bond’s initial rating with that implied by credit risk models, and show that rating agencies can create ratings inflation by issuing overly favorable ratings. This creates a “window of opportunity” for lower-quality firms to compete for funding. In this environment, high-quality firms have an incentive to use mini-bond underpricing to signal their quality. Our data highlight that, according to information-based corporate finance theory, higher underpricing is correlated with higher-quality mini-bond issuers and lower early default rates.

Keywords: Credit Risk; Financing Gap, Mini-Bonds, Mittelstand, Rating Inflation, Small Medium Sized Enterprises (SMEs)

JEL Classification: G12, G30, G32

Suggested Citation

Schweizer, Denis and Proelss, Juliane and Mietzner, Mark, Hidden Champions or Black Sheep? Evidence from German Mini-Bonds (June 30, 2015). Available at SSRN: https://ssrn.com/abstract=2625224 or http://dx.doi.org/10.2139/ssrn.2625224

Denis Schweizer (Contact Author)

Concordia University ( email )

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HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

Juliane Proelss

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Trier University of Applied Sciences ( email )

Scheidershof
Trier, 54293
Germany

Mark Mietzner

Leipzig University of Applied Sciences - HTWK Leipzig ( email )

Leipzig
Germany

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