Paper Title
Unsolicited Credit Ratings and IPO Underpricing

Numerous previous studies have analyzed solicited credit ratings provided by professional credit rating agencies to examine the relationship between credit ratings and the underpricing of equity offerings. However, solicited credit ratings are inquired for and paid for by companies that have been rated. Firms seek credit ratings because they provide information that is clearly relevant to the future financial decisions involving the firm. In other words, the exploration of this correlation using solicited credit ratings is affected by the endogeneity problem. This paper uses a unique and exogenous unsolicited credit rating database provided by the Taiwan Economic Journal. It also examines a sample of 1306 companies that issued IPOs between January 1995 and December 2014 to investigate the effects of credit rating on IPO underpricing. The results reveal a significantly negative correlation between credit rating and IPO underpricing. In particular, companies with a credit rating are less likely to underprice their IPOs. Index Terms—information asymmetry, IPO, underpricing, unsolicited credit ratings