Credit Ratings and the Choice of Payment Method in Mergers and Acquisitions
50 Pages Posted: 19 Jan 2013 Last revised: 20 Feb 2014
Date Written: February 17, 2014
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.
Keywords: Credit Rating, Method of Payment, Mergers and Acquisitions
JEL Classification: G14, G24, G32, G34
Suggested Citation: Suggested Citation