Credit Market Driven Acquisitions

76 Pages Posted: 15 Apr 2022 Last revised: 15 Oct 2024

See all articles by Huseyin Gulen

Huseyin Gulen

Mitchell E. Daniels, Jr School of Business, Purdue University; Purdue University - Krannert School of Management

Candace Jens

Syracuse University - Whitman School of Management

Stefano Rossi

Bocconi University; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: September 19, 2022

Abstract

In a comprehensive sample of takeovers from 1983-2020, we show that credit market conditions predict takeover activity.  A deterioration in aggregate credit quality predicts an increase in the number and aggregate value of takeovers in years two and three, particularly for cash-financed deals, and lower activity in years five and six.  We find similar results in international samples and when omitting the financial crisis.  Worse aggregate credit quality predicts higher firm-level debt issuance and probability of a cash-financed deal announcement over the following three quarters. Our results are consistent with a framework with biased credit market investors and rational managers.

Keywords: takeovers, mergers and acquisitions, credit quality, merger waves.

JEL Classification: G34, G32.

Suggested Citation

Gulen, Huseyin and Jens, Candace and Rossi, Stefano, Credit Market Driven Acquisitions (September 19, 2022). Available at SSRN: https://ssrn.com/abstract=4075202 or http://dx.doi.org/10.2139/ssrn.4075202

Huseyin Gulen

Mitchell E. Daniels, Jr School of Business, Purdue University ( email )

403 Mitch Daniels Blvd.
West Lafayette, IN 47907
United States

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Candace Jens (Contact Author)

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

Stefano Rossi

Bocconi University ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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