Bank Loan Certification and Non-Bank Debt: Evidence from Large Ipos
Posted: 11 Feb 1997
Date Written: Undated
Previous research concludes that companies with an established bank borrowing relationship receive certification benefits. Evidence from initial public offerings (IPOs) suggests that certification signals low risk and results in less run-up in price after the offering than firms with no certification. However, recent research implies that firms also receive risk revealing benefits from nonbank debt. In this paper, we focus on larger IPOs to increase the likelihood of nonbank debt in the capital structure. We find that an existing banking relationship, in itself, does not significantly explain after-market price run-up. Our results suggest that whatever bank certification benefits do exist must be considered in the context of broader debt structure decisions.
JEL Classification: G20
Suggested Citation: Suggested Citation