Credit Ratings and the Choice of Payment Method in Mergers and Acquisitions

50 Pages Posted: 19 Jan 2013 Last revised: 20 Feb 2014

See all articles by Nikolaos Karampatsas

Nikolaos Karampatsas

University of Surrey - Surrey Business School

Dimitris Petmezas

University of Surrey - Surrey Business School

Nickolaos G. Travlos

University of Surrey; ALBA Graduate Business School

Date Written: February 17, 2014

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.

Keywords: Credit Rating, Method of Payment, Mergers and Acquisitions

JEL Classification: G14, G24, G32, G34

Suggested Citation

Karampatsas, Nikolaos and Petmezas, Dimitris and Travlos, Nickolaos G., Credit Ratings and the Choice of Payment Method in Mergers and Acquisitions (February 17, 2014). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2203536 or http://dx.doi.org/10.2139/ssrn.2203536

Nikolaos Karampatsas

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Dimitris Petmezas

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Nickolaos G. Travlos (Contact Author)

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

HOME PAGE: http://www.alba.edu.gr

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