Raghavendra Rau
Bio sketch: Professor Rau is currently the Sir Evelyn de Rothschild Professor of Finance at the Cambridge Judge Business School. He has taught at a number of universities around the world, including the Institut d’Etudes Politiques de Paris (Sciences PO), Purdue University, the University of California at Los Angeles and most recently, the University of California at Berkeley. In addition, Professor Rau was Principal at Barclays Global Investors, then the largest asset manager in the world, in San Francisco from 2008-2009. He is an Editor of Financial Management, and Associate Editor of the International Review of Finance and the Quarterly Journal of Finance. His research interests lie in the area of corporate finance and market efficiency. His research has frequently been covered by the popular press including the New York Times, the Financial Times, the Wall Street Journal, and the Economist, among others. Professor Rau is Head of the School’s Finance & Accounting subject group, and a member of the Cambridge Corporate Governance Network (CCGN).
Abstract: We analyze a sample of firms that choose to tap the public debt markets before the public equity markets. These “debt first” firms are typically significantly larger and less likely to have information asymmetry problems than traditional “equity-first” firms in the same industry and year. Their debt issues are more expensive and face more restrictive covenants than debt issues by publicly listed firms that tap the debt market for the first time or publicly listed firms that have public debt outstanding and issue subsequent additional public debt. However, when the debt-first firms eventually go public, they face lower underpricing than firms without public debt that undertake an initial public offering in the same industry. Our results have significant tactical implications for firms choosing to access the public capital markets for the first time.
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