Are Credit Rating Disagreements Priced in the M&A Market?

This paper examines the effect of credit rating disagreements on merger and acquisition (M&A) decisions. We show that acquirers with split ratings prefer to use stock to finance their acquisitions. More importantly, we find that acquirers with split ratings experience lower announcement returns. Further analysis shows that overpayment by acquirers with split ratings is concentrated in acquirers with entrenched managers. Our results are robust to alternative identification strategies. Overall, our evidence indicates that credit rating disagreements are heavily priced in the M&A market.

Keywords: Bond ratings, Method of payment, Merger and acquisitions

JEL Classification: G24, G33, J33

Suggested Citation: Suggested Citation

Hasan, Iftekhar and Huang, He and To, Thomas Yin, Are Credit Rating Disagreements Priced in the M&A Market? (March 20, 2021). Journal of International Financial Markets, Institutions and Money, Vol. 72, 101335, 2021, Available at SSRN: https://ssrn.com/abstract=3808400 or http://dx.doi.org/10.2139/ssrn.3808400