Credit Rating Levels and Acquisitions: The European Evidence
Magnus Blomkvist (),
Johannes Kortekangas and
Hitesh Vyas
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Magnus Blomkvist: Audencia Business School
Johannes Kortekangas: Hanken School of Economics
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Abstract:
This study examines the impact of credit rating levels on acquisitions in Europe. In line with a financial constraints explanation, we find that improving the credit rating level by one notch increases the acquisition likelihood by 1.87pp or 8.1% (from baseline estimates). As the rating level further increases, firms begin to forego acquisition opportunities resulting in an inverse U-shaped relation between credit rating levels and acquisitions. The pattern is consistent with that high rated firms manage their credit rating levels by mitigating acquisition-induced downgrades. Overall, our results imply that European managers give relevance to their credit rating and that higher ratings relaxes financial constraints facilitating acquisitions.
Keywords: Mergers and Acquisitions; Credit Ratings; Financial Constraints (search for similar items in EconPapers)
Date: 2021-04-09
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Published in Economics Bulletin, 2021
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03196701
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