Would it be helpful to have credit ratings to prevent the initial public offering underpricing?

Abstract

In this study, the effect of the credit rating on the IPO pricing has been analysed. The analysis of the companies which were listed in Korea Exchange and made IPO from 2002 to 2014, found out that the companies which had the credit rating had less underpricing IPOs than those which did not have. The results showed that the underpricing IPO has nothing to do with the level of credit rating and the difference in the credit rating entities and that the existence of the credit rating itself plays a big role in removing the uncertainties and information asymmetry on the corporate values. Same as the final underpricing IPO, the companies which have the credit rating were also found to have less adjustments of the public offering price during the period of demand forecasting. These results show that the credit rating plays a big role in removing the information asymmetry in the IPO market. © 2017, ASERS Publishing House. All rights reserved.