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Credit Ratings and Acquisitions

55 Pages Posted: 3 Jul 2015 Last revised: 26 Jun 2017

Nihat Aktas

WHU - Otto Beisheim School of Management

Nikolaos Karampatsas

University of Surrey - Surrey Business School

Dimitris Petmezas

University of Surrey - Surrey Business School

Henri Servaes

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

Date Written: June 25, 2017

Abstract

There is a curvilinear relation between acquisitions and credit ratings. 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. Acquisitions have a negative impact on future ratings for highly-rated firms, but a positive impact for firms with low ratings. These results indicate that the level of a firm’s credit rating has a significant impact on the acquisition process.

Keywords: credit ratings, acquisitions, financial constraints, takeover aversion

JEL Classification: G30, G34

Suggested Citation

Aktas, Nihat and Karampatsas, Nikolaos and Petmezas, Dimitris and Servaes, Henri, Credit Ratings and Acquisitions (June 25, 2017). 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

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

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)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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