 The acquisition motive of newly credit rated firmsMagnus Blomkvist, Karl Felixson, Eva Liljeblom, Hitesh Vyas and Anup Basnet Journal of Banking & Finance, 2024, vol. 164, issue C Abstract: A large body of research documents an increased acquisition activity among credit rated firms. We examine whether firms seek an initial credit rating to conduct large scale acquisitions, and whether this acquisition activity is driven by empire building or value creation motives. First, we find that acquisitions are a credible motive for seeking a credit rating, initially rated firms are associated with 13.05pp greater acquisition likelihood and these transactions are more likely to be settled by cash. Second, to recoup the costs of becoming rated, firms conduct large-scale high-quality acquisitions associated with 1.52pp higher acquirer announcement returns, where the higher cumulative abnormal returns are concentrated among firms obtaining a speculative grade initial rating. Third, following the initial rating year, acquisition activity dampens to pre-rating levels. In sum our findings lend support to the notion that previously financial constrained firms enter the bond markets to complement bank financing when conducting large value enhancing acquisitions. Keywords: Mergers and acquisitions; Capital market access; Credit ratings; Capital supply; Bond ratings; Empire building; Value creation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:164:y:2024:i:c:s0378426624001353 DOI: 10.1016/j.jbankfin.2024.107218 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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