The Impact of the Dodd-Frank Act on Acquisition Activity

Anup Basnet, Magnus Blomkvist, Karl Felixson, Eva Liljeblom and Hitesh Vyas
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Anup Basnet: UNIS - University of Surrey
Magnus Blomkvist: EDHEC - EDHEC Business School - UCL - Université catholique de Lille
Karl Felixson: Hanken School of Economics [Helsinki]
Hitesh Vyas: Audencia Business School

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Abstract: The Dodd-Frank Act in 2010 increased ex ante downgrade threats without changing credit-rated firms' underlying credit quality. We show that the act had negative impacts on credit-rated firms' acquisition activities, especially among speculative-grade firms as they face greater downgrade-induced costs. The more selective acquisition strategies led to higher announcement returns and greater postacquisition upgrade probabilities. Consistent with firms refraining from taking on overall acquisition risk rather than financial risk, we show significant reductions in both cash-and stock-settled dealmaking after the Dodd-Frank Act. In sum, our study highlights that increased legal stringency on credit rating agencies has important spillover effects on firms' mergers and acquisitions activities.

Keywords: Mergers and Acquisitions JEL Classification: G30; G32; G34; Credit Ratings; Credit Ratings Dodd-Frank Act Mergers and Acquisitions JEL Classification: G30; G32; G34; Mergers and Acquisitions; Dodd-Frank Act (search for similar items in EconPapers)
Date: 2026-05-01
Note: View the original document on HAL open archive server: https://hal.science/hal-05741138v1
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Published in Journal of Law and Economics, 2026, 69 (2), pp.285-316. ⟨10.1086/737770⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05741138

DOI: 10.1086/737770

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