Initial credit ratings and firm value

Abstract

This study investigates the influence of listed firms’ initial credit ratings on the stock market and firms’ value. A firm’s ability to finance itself through the public capital market is a critical landmark in its growth process. However, empirical studies on initial credit ratings are rare compared to those on initial public offerings. In particular, the threshold for a firm to be listed has been lowered because of the introduction of a scheme to give special privileges to firms with technical expertise and the opening of the Korea New Exchange (KONEX) market. However, a firm’s listing no longer conveys its sustainability and financial soundness. This study verifies the effect of initial credit ratings on corporate value—which has been unclear to date—through an empirical analysis of listed companies. The study has meaningful implications, as it demonstrates the role of credit ratings in addressing the limitations of the revised listing system.