Foreign Acquisition and Credit Risk: Evidence from the U.S. CDS Market

Umit Yilmaz
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Umit Yilmaz: Swiss Finance Institute and University of Lugano

No 16-50, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper empirically analyses the effect of foreign block acquisitions on the U.S. target firms' credit risk as captured by their CDS. The involvement of foreign investors triggers a major increase, about 42 basis points, in the target firm's CDS. This effect is mostly pronounced for firms with majority control transactions, with acquirers from developed markets, and with diversifying deals. The findings are consistent with the asymmetric information hypothesis. Indeed, foreign block purchases are significantly associated with higher exposure to idiosyncratic stock volatility.

Keywords: Foreign block acquisitions; Credit risk; CDS spreads; Stock volatility (search for similar items in EconPapers)
JEL-codes: F21 F30 G12 G14 G15 G34 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2016-07, Revised 2016-12
New Economics Papers: this item is included in nep-cfn and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1650

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