Credit ratings and the choice of payment method in mergers and acquisitions

Abstract

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

Interorganizational imitation and payment mode decisions in cross‐border acquisitions

“…This includes availability of free cash flow (Jensen, 1986;Martin, 1996); use of stock by firms showing superior stock performance (Zhang, 2001), capital structure, and organizational slack (Chaney, Lovata, & Philipich, 1991); credit ratings of the acquirer firm (Karampatsas, Petmezas, & Travlos, 2012); ownership structure (Faccio & Masulis, 2005;Swieringa & Schauten, 2008) and listing status of target firm (Draper & Paudyal, 2006). Under the condition of information asymmetry, that is, when target firm knows its value better than acquirer, acquirer offers stock due to its contingent pricing characteristics (Hansen, 1987).…”

Investor sentiment and bidder announcement abnormal returns

“…Following e.g., Faccio and Masulis (2005) and Karampatsas et al (2014), we use the pre-bid run-up in the bidder's market-adjusted returns to capture possible market overvaluation of the bidder. CARs -252,-20 is the cumulative abnormal returns over the period from -252 to -20 days prior to each merger announcement.…”

M&A Synergies in Domestic M&A Deals in Russia in 2006–2014

“…В своей работе Дамодаран использовал публичные кредит-ные рейтинги компаний и синтетические кредитные рейтинги, рассчитанные через коэффициент покрытия долга для оценки стоимости долга непубличных компаний. Используя данный подход, авторы рабо-ты [Karampatsas, Petmezas, Travlos, 2014] на выборке сделок M&A в США с 1998 по 2009 г. обнаружили, что компании с высо-кой емкостью долга чаще оплачивают такие сделки наличными средствами. Также было показано, что сделки между компаниями с инвестиционным кредитным рейтингом увеличивают емкость долга.…”