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Credit rating levels and acquisitions: the European evidence

Author

Listed:
  • Magnus Blomkvist

    (Audencia Business School - Nantes)

  • Johannes Kortekangas

    (Hanken School of Economics, Gasum)

  • Hitesh Vyas

    (Audencia Business School - Nantes)

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.

Suggested Citation

  • Magnus Blomkvist & Johannes Kortekangas & Hitesh Vyas, 2021. "Credit rating levels and acquisitions: the European evidence," Economics Bulletin, AccessEcon, vol. 41(2), pages 222-233.
    • Handle: RePEc:ebl:ecbull:eb-20-00807
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    More about this item

    Keywords

    Mergers and acquisitions; Credit ratings; Financial constraints;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G2 - Financial Economics - - Financial Institutions and Services

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