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Magnus Blomkvist, Johannes Kortekangas and Hitesh Vyas
''Credit rating levels and acquisitions: the European evidence''
( 2021, Vol. 41 No.2 )
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
JEL: G3 - Corporate Finance and Governance: General
G2 - Financial Institutions and Services: General
Manuscript Received : Aug 11 2020 Manuscript Accepted : Apr 09 2021

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