Credit ratings and acquisitions

Aktas, Nihat; Petmezas, Dimitris; Servaes, Henri; Karampatsas, Nikolaos

doi:10.1016/j.jcorpfin.2021.101986

Cited by 17 publications

(6 citation statements)

References 82 publications

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“…Aktas et al. (2019) show that non–investment‐grade firms conduct more acquisitions as their ratings improve, whereas that association reverses for investment‐grade firms. Besides acquisition decisions, credit ratings also affect deal characteristics, such as payment method (Karampatsas et al., 2014) and deal premiums (Jory et al., 2016).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…For example, Harford and Uysal (2014) find that rated firms are more likely to conduct acquisitions, while Aktas et al. (2019) document a curvilinear correlation between credit rating levels and acquisitions. In addition, Karampatsas et al.…”

Section: Introductionmentioning

confidence: 99%

“…Presumably, minus firms are more financially constrained than non‐minus firms; thus, a possible alternative explanation is that minus firms have less ability to conduct acquisitions because they are more financially constrained. Several studies document that financial constraints can affect firm investment decisions (Aktas et al., 2019; Campello et al., 2010; Harford & Uysal, 2014; Li, 2011). For example, Campello et al.…”

Section: Introductionmentioning

confidence: 99%

“…In addition, Aktas et al. (2019) show that non–investment‐grade firms conduct more acquisitions as their ratings rise, which they attribute to their decreasing financial constraints. Therefore, the baseline findings may be driven by financial constraints rather than the intent to avoid downgrade risk.…”

Section: Introductionmentioning

confidence: 99%

“…For example, Aktas et al. (2019) demonstrate the correlation between absolute rating levels and a firm's acquisition decisions. However, unlike this strand of literature, this study focuses on those firms that are at risk of a rating downgrade but have not yet received one.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Credit rating downgrade risk and acquisition decisions

Kang

2021

Business Fin & Account

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This study examines the impact of credit rating downgrade risk on acquisition decisions. I find that firms at risk of a rating downgrade conduct fewer acquisitions. This result is robust to different measures of downgrade risk, instrumental variable analyses and matched sample tests. The correlation between downgrade risk and acquisitionpropensity is likely driven by the concern that risks associated with acquisitions lead to downgrades as evidenced by the more cautious approach of acquirers facing downgrade risk. These firms take more time to complete deals, hire more and higher-quality financial advisors, issue less debt to finance merger consideration, adopt target termination fee clauses and select targets with lower information asymmetry and higher ratings. This more cautious approach is associated with better long-term post-merger performance and reduced future-downgrade risk. Subgroup analyses reveal credit rating downgrade risk is negatively associated with acquisition decisions and positively associated with performance for investment-grade firms, especially BBB-firms, which are on the brink of being downgraded to non-investment grade. Such associations are not significant for non-investment-grade firms. Overall, the results suggest that firms at risk of a rating downgrade conduct acquisitions more cautiously, leading to fewer but more value-creating deals.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Credit rating downgrade risk and acquisition decisions

Kang

2021

Business Fin & Account

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How do credit ratings affect corporate investment efficiency?

Xiao,

2023

Int. J Fin Econ

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This study examines the impact of credit ratings on the efficiency of firms' investments. Using a large sample of US firms, we find a positive relationship between the existence of credit ratings and investment efficiency. The cross‐sectional analyses show the positive relationship is more pronounced for firms with greater information asymmetry and weaker corporate governance. Our results are robust to different methods to address potential endogeneity concerns, alternative measures of key variables, and the inclusion of additional control variables. Overall, the findings support the notion that credit rating agencies enhance information transparency and external monitoring, thereby allowing rated firms to promote investment efficiency. The findings contribute to our understanding of the significant role played by credit rating agencies in shaping firms' investment behaviour and efficiency.

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Credit ratings and acquisitions

Cited by 17 publications

References 82 publications

Credit rating downgrade risk and acquisition decisions

Credit rating downgrade risk and acquisition decisions

How do credit ratings affect corporate investment efficiency?

Forecasting crude oil price returns: Can nonlinearity help?

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