Multiple Credit Ratings and the Performance of US IPO’s

When?

Thursday 14 June 2012, 13:00

Where?

14MS01, Surrey Business School

Open to:

Public, Staff, Students

Speaker:

Dr Dimitrios Gounopoulos, University of Surrey

Biography

Prior to joining the Surrey Business School, University of Surrey, Dimitrios worked for University of Manchester (Manchester Business School). He has also worked on several private companies and government consulting projects related with electronics and telecommunications. He obtained degrees in Electrical and Electronic Engineering from Universities of Bradford and Leeds. In addition he holds an MBA from Leeds University Business School and a PhD from Manchester Business School - University of Manchester. Finally he holds a Postgraduate Certificate in Academic Practice from the University of Surrey.
Dimitrios main research interest lies in the areas of Corporate Finance and International Accounting. He specializes on Initial Public Offerings (IPOs) and he is known for his continuous research involvement on this field. Dimitrios research also address issues in Bonds Structure, Corporate Governance, Executive Compensation and Earnings Management.

Abstract

This paper examines the effect of credit ratings by S&P, Moody’s and Fitch on IPOs performance. The findings from U.S. common share IPOs during 2000–2010 indicate that newly listed firms with credit ratings before going public are less underpriced than IPOs without credit ratings. The existence of credit rating alleviates information asymmetry and consequently issuers of credit rated IPOs leave less money on the table due to the fact that are priced more efficiently. Investors value the credit rating IPOs highly, relying immensely on the companies’ assessment by the credit rating agencies. Markets evaluate ratings from different agencies in a dissimilar way with S&Ps credit rating existence having more impact on the initial returns, Moody’s behaving more sophisticated on announcing grade ratings and Fitch being more active on revising its ratings. Evidently IPOs obtaining assessments by different agencies experience lower level of underpricing.