Are credit rating disagreements priced in the M&A market?

Iftekhar Hasan, He Huang and Thomas To

Journal of International Financial Markets, Institutions and Money, 2021, vol. 72, issue C

Abstract: This paper examines the effect of credit rating disagreements on merger and acquisition (M&A) decisions. We show that acquirers with split ratings prefer to use stock to finance their acquisitions. More importantly, we find that acquirers with split ratings experience lower announcement returns. Further analysis shows that overpayment by acquirers with split ratings is concentrated in acquirers with entrenched managers. Our results are robust to alternative identification strategies. Overall, our evidence indicates that credit rating disagreements are heavily priced in the M&A market.

Keywords: Bond ratings; Method of payment; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G24 G34 J33 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:72:y:2021:i:c:s1042443121000548

DOI: 10.1016/j.intfin.2021.101335

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