Bank Certification, Bank Debt Intensity, and the Pricing of Initial Public Offerings

We document that higher bank debt proportion and shorter bank debt maturity structure reduce IPO underpricing. Attributing this relationship to information asymmetry, evidence shows that the IPO firms with greater bank debt intensity are not inherently different in firm quality as reflected by their long-term stock and operating performances. We find that bank certification is more pronounced for IPO firms enduring more severe informational opacity and for VC-backed IPO firms, weaker for PE-backed IPO firms, and dampened after information enhancing regulations (SOX and Dodd-Frank Acts). Our analysis also reveals some complementarity and substitution effects in the certification provided by underwriters, VCs, PEs, credit rating agencies, and trade credits. The findings are robust to several model specifications and empirical methods, alleviating endogeneity concerns. The study contributes at the confluence of IPO underpricing, third-party certification, and the debt maturity structure literatures