The Initial and Subsequent Credit Rating Effects on Acquisitions

55 Pages Posted: 23 Jun 2021

See all articles by Magnus Blomkvist

Magnus Blomkvist

Audencia Business School

Karl Felixson

Swedish School of Economics and Business Administration

Eva Liljeblom

Swedish School of Economics and Business Administration

Hitesh Vyas

Audencia Business School

Date Written: June 15, 2021

Abstract

We study initial and subsequent effects of credit ratings on acquisition activity. Our findings suggest that access to bond markets, i.e. overcoming bank lending constraints, in order to conduct large and high quality acquisitions is an important motive for becoming rated. This initial connection drives many prior results. However, following the initial credit rating effect, acquisition activity actually dampens in response to credit rating induced monitoring. Monitoring by credit rating agencies is linked to diversifying acquisitions, acquisitions of low risk targets and a reduced likelihood of overpayment.

Keywords: Mergers and Acquisitions, Credit Ratings, Monitoring, Capital Supply, Bond Ratings, Overinvestment

JEL Classification: G30, G32, G34

Suggested Citation

Blomkvist, Magnus and Felixson, Karl and Liljeblom, Eva and Vyas, Hitesh, The Initial and Subsequent Credit Rating Effects on Acquisitions (June 15, 2021). Available at SSRN: https://ssrn.com/abstract=3867565 or http://dx.doi.org/10.2139/ssrn.3867565

Magnus Blomkvist

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Karl Felixson

Swedish School of Economics and Business Administration ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Eva Liljeblom (Contact Author)

Swedish School of Economics and Business Administration ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+358-9-431 33 291 (Phone)
+358-9-431 33 393 (Fax)

Hitesh Vyas

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

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