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

Karampatsas, Nikolaos; Petmezas, Dimitris; Travlos, Nickolaos G.

Abstract

This paper establishes that credit ratings affect the choice of payment method in mergers and acquisitions. We find that bidders holding a high rating level are more likely to use cash financing in a takeover. We attribute this finding to lower financial constraints and enhanced capability of highly rated firms to access public debt markets as implied by their higher credit quality. Our results are economically significant and robust to several firm- and deal-specific characteristics and are not sensitive to the method used to measure the likelihood of the payment choice or after controlling for potential endogeneity bias.

Citation

Karampatsas, N., Petmezas, D., & Travlos, N. G. (2014). Credit ratings and the choice of payment method in mergers and acquisitions. Journal of Corporate Finance, 25, 474-493. https://doi.org/10.1016/j.jcorpfin.2014.01.008

• Journal Article Type: Article
• Acceptance Date: Jan 24, 2014
• Online Publication Date: Feb 8, 2014
• Publication Date: 2014-04
• Deposit Date: Jul 29, 2020
• Publicly Available Date: Nov 5, 2020
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 25
• Pages: 474-493
• DOI: https://doi.org/10.1016/j.jcorpfin.2014.01.008
• Public URL: https://durham-repository.worktribe.com/output/1295726
• Related Public URLs: https://epubs.surrey.ac.uk/819982/