Credit Ratings by Foreign and Domestic Agents and Security Issuance Decisions
54 Pages Posted: 5 Jan 2021 Last revised: 13 Dec 2021
Date Written: August 14, 2019
We investigate the foreign and domestic credit ratings on Chinese seasoned equity offerings (SEOs). Our results indicate a negative association between acquiring credit ratings and SEO underpricing. Ratings from the international agent Moody’s and multiple ratings contribute more to reducing market uncertainty and underpricing than local rating agencies. This finding is attributed to the intense competition in the Chinese market, which exacerbates the conflicts of interest between local rating agencies and rated firms. The negative association disappears in state-owned enterprises (SOEs), in firms with political connections, and for issuers located in the specific economic development areas.
Keywords: Credit ratings, state-owned enterprises, political connections, inflated ratings
JEL Classification: G14, G24, G32
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