Do Multiple Credit Ratings Reduce Money Left on the Table? Evidence from U.S. IPOs
57 Pages Posted: 22 Apr 2019 Last revised: 13 Jul 2021
Date Written: December 29, 2020
Using credit ratings as an uncertainty-reducing mechanism, we provide evidence of the beneficial impact of multiple credit ratings on reducing IPO underpricing and filing price revision. We find that the acquisition of multiple ratings in the pre-IPO period mitigates uncertainty more than the acquisition of a single rating. Multi-rated firms also have higher probabilities of survival than those with a single rating, whereas credit rating levels matter only for IPOs with more than one rating. The IPOs that are awarded the first rating on the borderline between investment and non-investment grades 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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