Credit scores and the performance of newly-listed stocks: an exploration of the Chinese A-share market

Abstract

Acknowledgements:We thank S&P Global Market Intelligence for the provision of Credit Model (CM) scores necessary for the completion of this study. This project developed from a request by S&P in February 2014 to assess the power of CM scores in explaining post-IPO performance. Our investigation offers a framework for assessing this question as well as other related themes. We especially thank Clemens Thym, Michelle P. Cheong and Phillip Lee of S&P Global Market Intelligence for earlier discussions, suggestions and input. Additionally, we express thanks to Daniel Chan and Jack Wong.We also thank an anonymous reviewer for comments rendered on an earlier draft of this paper. We find that CM scores exhibit positive association with post-listing buy-and-hold stock returns. Even stronger associations emerge when considering fundamental accounting performance, especially over longer-run horizons. In respect of the listing of Chinese Ashare firms, we conjecture that greater alignment between secondary market prices and fundamentals would likely have arisen had such scores been in the public domain during the study period.