Credit Ratings and Acquisitions

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

Abstract

There is a curvilinear relation between credit ratings and acquisitions. Non-investment grade firms make more acquisitions as their ratings improve, consistent with the relaxation of financial constraints. However, this pattern reverses for investment grade firms, supporting the view that such firms want to preserve their rating and are concerned about acquisition-related downgrades. Abnormal returns first decrease and then increase as ratings improve. In support of these findings, acquisitions have a negative impact on future ratings only for highly-rated firms. These results indicate that the level of a firm’s credit rating has a significant impact on the acquisition process.

Citation

Aktas, N., Petmezas, D., Servaes, H., & Karampatsas, N. (2021). Credit Ratings and Acquisitions. Journal of Corporate Finance, 69, Article 101986. https://doi.org/10.1016/j.jcorpfin.2021.101986

• Journal Article Type: Article
• Acceptance Date: May 22, 2021
• Online Publication Date: Jun 2, 2021
• Publication Date: 2021-08
• Deposit Date: May 24, 2021
• Publicly Available Date: Jun 2, 2023
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 69
• Article Number: 101986
• DOI: https://doi.org/10.1016/j.jcorpfin.2021.101986
• Public URL: https://durham-repository.worktribe.com/output/1247779