Abstract
Using a sample of 4757 bilateral bank loans to Chinese enterprises, we analyze the effect of firms’ initial public offerings (IPOs) on interest rate savings. Our evidence shows that following successful equity IPOs, firms are granted with a significant discount in their cost of credit. This indicates the interest rate saving effect of IPOs does exist in China, despite huge institutional differences between emerging and developed markets. Importantly, such effect is related to institutional factors. Firms benefit from larger IPO interest rate savings if they are state-owned firms (SOEs), if their loans have been offered by non-five big banks, or if their bank loans take place in the period with lending interest rate ceilings and bottoms. Our study extends the findings of Pagano et al. (1998, JF), Hale and Santos (2009, JFE) and Schenone (2010, RFS) by providing an institutional interpretation to the variance in IPO interest rate saving effect.
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