The Initial and Subsequent Credit Rating Effects on Acquisitions
55 Pages Posted: 23 Jun 2021
Date Written: June 15, 2021
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: Suggested Citation