Credit ratings and the choice of payment method in mergers and acquisitions

Nikolaos Karampatsas, Dimitris Petmezas and Nickolaos G. Travlos

Journal of Corporate Finance, 2014, vol. 25, issue C, 474-493

Abstract: This paper establishes that credit ratings affect the choice of payment method in mergers and acquisitions. We find that bidders holding a high rating level are more likely to use cash financing in a takeover. We attribute this finding to lower financial constraints and enhanced capability of highly rated firms to access public debt markets as implied by their higher credit quality. Our results are economically significant and robust to several firm- and deal-specific characteristics and are not sensitive to the method used to measure the likelihood of the payment choice or after controlling for potential endogeneity bias.

Keywords: Credit ratings; Method of payment; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G14 G24 G32 G34 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:25:y:2014:i:c:p:474-493

DOI: 10.1016/j.jcorpfin.2014.01.008

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