Credit Ratings and the Choice of Payment Method in Mergers and Acquisitions

By Nikolaos Karampatsas, D. Petmezas, N. Travlos. 2014

123 citations recorded by the source corpus.

This paper establishes that credit ratings affect the choice of payment method in mergers and acquisitions. We find that bidders holding a high rating level are more likely to use cash financing in a takeover. We attribute this finding to lower financial constraints and enhanced capability of highly rated firms to access public debt markets as implied by their higher credit quality. Our results are economically significant and robust to several firm- and deal-specific characteristics and are not sensitive to the method used to measure the likelihood of the payment choice or after controlling for potential endogeneity bias.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/063cac35a04b16ab43cca6d27be0bd7c14c200cc

Citations in the corpus

• To what extent does corporate liquidity affect M&A decisions, method of payment and performance? Evidence from China (2017, unknown): “2 Karampatsas et al. (2014) find that acquires with a high level of credit rating are more likely to use cash to finance acquisitions.”