This paper establishes that credit ratings affect the choice of payment method in mergers and acquisitions. We find that bidders holding a credit rating and/or having a higher rating level are more likely to use cash financing in a takeover. We attribute this finding to the lower financial constraints and enhanced capability of these firms to access public debt markets as implied by their higher debt capacity and/or credit quality. Our results are robust to several firm-and deal-characteristics and are not sensitive to the method used to measure the probability of payment choice or after controlling for endogeneity bias.JEL Classification: G14; G24; G32; G34

This paper establishes that credit ratings affect the choice of payment method in mergers and acquisitions. We find that bidders holding a credit rating and/or having a higher rating level are more likely to use cash financing in a takeover. We attribute this finding to the lower financial constraints and enhanced capability of these firms to access public debt markets as implied by their higher debt capacity and/or credit quality. Our results are robust to several firm-and deal-characteristics and are not sensitive to the method used to measure the probability of payment choice or after controlling for endogeneity bias. JEL Classification: G14; G24; G32; G34

We examine the impact of firm‐specific investor sentiment (FSIS) on stock returns for negative and positive earnings surprises. Using a measure constructed from firm‐specific tweets, we find that FSIS has a greater impact on stock returns for negative relative to positive earnings surprises. We further show that the impact of FSIS is greater for firms whose valuation is uncertain and difficult to arbitrage. Moreover, we provide evidence of return reversals over post‐announcement periods. Our results highlight the importance of FSIS around earnings announcements.

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