Debtholder Wealth Effects in Mergers and Acquisitions: Evidence from the CDS Market

63 Pages Posted: 20 Feb 2020

See all articles by Kai Huettermann

Kai Huettermann

Ruhr-University Bochum; AURICON Consulting Group

Denisa Lleshaj

Ruhr University of Bochum

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Date Written: January 23, 2020


This paper examines changes in acquirer and target companies’ Credit Default Swap (CDS) spreads as a proxy for default risk around official mergers and acquisitions (M&A) announce-ments. Related literature extensively documents wealth effects triggered by M&A from the shareholders’ perspective, but there is only a slight evidence on the wealth effects experienced by the transaction firms’ debtholders. Therefore, this study adds to the literature by exploring the impact of M&A announcements on CDS spreads empirically. A negative correlation between M&A and the development of the value of debt securities is increasingly being addressed as a central theme from the acquirer’s perspective. In contrast, the literature assumes that the target’s debtholders earn positive wealth effects from acquisition. Hence, we detect acquiring and target firms’ abnormal changes in CDS spreads between 2004 and 2016 as a basis for regression analyses. In this regard, we take deal characteristics as well as other determinants that could have influenced respective company’s credit risk into account. Our evidence suggests that M&A, on average, increase the acquiring firms’ default risk, but tend to improve the target firms’ risk position.

Keywords: Mergers and Acquisitions, Credit Default Swaps, Credit Risk

JEL Classification: G11, G12, G14, G20, G30, G34, M41

Suggested Citation

Huettermann, Kai and Lleshaj, Denisa, Debtholder Wealth Effects in Mergers and Acquisitions: Evidence from the CDS Market (January 23, 2020). Available at SSRN: or

Kai Huettermann (Contact Author)

Ruhr-University Bochum ( email )

Universitätsstraße 150
Bochum, NRW 44780

AURICON Consulting Group ( email )

Kaistraße 18
Düsseldorf, 40221

Denisa Lleshaj

Ruhr University of Bochum ( email )

Bochum, 44780

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