Credit Ratings and Acquisitions

54 Pages Posted: 30 May 2018 Last revised: 28 May 2021

See all articles by Nihat Aktas

Nihat Aktas

WHU - Otto Beisheim School of Management

Dimitris Petmezas

Durham University Business School

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Nikolaos Karampatsas

University of Surrey - Surrey Business School

Date Written: May 14, 2021

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.

Keywords: credit ratings, acquisition likelihood, acquisition announcement returns, downgrades

JEL Classification: G30, G34

Suggested Citation

Aktas, Nihat and Petmezas, Dimitris and Servaes, Henri and Karampatsas, Nikolaos, Credit Ratings and Acquisitions (May 14, 2021). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2625736 or http://dx.doi.org/10.2139/ssrn.2625736

Nihat Aktas

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Dimitris Petmezas

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Henri Servaes (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)

HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nikolaos Karampatsas

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

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