Credit ratings and the premiums paid in mergers and acquisitions

Surendranath R. Jory, Thanh N. Ngo and Daphne Wang ()

Journal of Empirical Finance, 2016, vol. 39, issue PA, 93-104

Abstract: We examine the contribution of credit ratings in the information set that bidders use to price targets. Using a sample that includes U.S. domestic deals completed between 1986 and 2012, we find that the presence of ratings significantly affects the M&A premiums paid in mergers and acquisitions (M&As). M&A premiums paid are lower in deals involving rated as opposed to nonrated firms. Assuming that the presence of ratings mitigates the problem of information asymmetry and allows bidders to pay a fair price for a target, then the post-M&A performance of bidders of rated targets would be superior. Indeed, we find that the presence of ratings and bidders’ post-M&A operating performance are positively related.

Keywords: Credit ratings; Mergers and acquisitions; Premiums (search for similar items in EconPapers)
JEL-codes: G14 G24 G34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:39:y:2016:i:pa:p:93-104

DOI: 10.1016/j.jempfin.2016.09.004

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