Does having a credit rating leave less money on the table when raising capital? A study of credit ratings and seasoned equity offerings in China

Winnie P. H. POON, Kam C. CHAN, Michael A. FIRTH

Research output: Journal PublicationsJournal Article (refereed)peer-review

12 Citations (Scopus)


We examine the impact of unsolicited credit ratings on seasoned equity offering (SEO) underpricing in China using issuer credit rating data of listed companies on the Shanghai and Shenzhen Stock Exchanges for the period 2002 to 2009. Our findings suggest that, after controlling for other factors, a SEO firm in China with a credit rating is able to reduce its SEO underpricing, on average, by 11.89% to 14.33%. In addition, we find that the underpricing of an SEO firm that receives a speculative-grade credit rating is not significantly different from an SEO firm with an investment-grade rating. Thus, SEO firms appear to benefit from receiving an unsolicited rating. In general, credit ratings reduce information asymmetry and hence leave less money on the table when raising capital. This may lead firms to actively solicit credit ratings in the future, especially those who plan to access the capital markets.
Original languageEnglish
Pages (from-to)88-106
Number of pages19
JournalPacific Basin Finance Journal
Early online date31 Oct 2012
Publication statusPublished - Apr 2013

Bibliographical note

The authors are grateful to Xinhua Finance Limited for providing company rating data. Poon acknowledges a research grant from the Research and Postgraduate Studies Committee of Lingnan University, Hong Kong and Firth acknowledges a research grant from the Government of the HKSAR (LU340610).


  • Credit rating
  • Information asymmetry
  • Seasoned equity offerings

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