Do Multiple Credit Ratings Reduce Money Left on the Table? Evidence from U.S. IPOs
63 Pages Posted: 22 Apr 2019 Last revised: 11 Feb 2020
Date Written: February 10, 2020
We examine initial public offerings (IPOs) with single, multiple, and no credit ratings. We document a beneficial effect of credit ratings provided by the three main credit rating agencies on IPO underpricing, which is amplified by the existence of multiple credit ratings. Credit rating levels matter for IPOs with more than one rating but not for those with a single rating. Multi-rated firms also have higher probabilities of survival than those with a single or no rating. Finally, IPOs awarded a first credit rating on the borderline between investment and non-investment grade are more likely to seek an additional rating.
Keywords: Initial public offerings (IPOs); credit ratings; IPO underpricing; survivorship
JEL Classification: G10, G14, G39
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