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Cross-border M&As and credit risk: Evidence from the CDS market

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  • Ismailescu, Iuliana
  • Col, Burcin

Abstract

This paper examines the impact of cross-border acquisition announcements on the U.S. bidders’ credit risk. On average, we find a significant increase in bidders’ rating-adjusted credit default swap (CDS) spreads around an acquisition announcement in an emerging market (EM), but no marked change if the target firm is from a developed market. The EM result is driven primarily by majority but not full control transactions, and by risky acquirers. We also find evidence of wealth transfer from acquirers’ bondholders to shareholders in EM acquisitions, which is stronger when transactions result in majority but not full control of the target or when acquirers are rated sub-investment grade. We attribute the rise in the U.S. bidders’ credit risk around announcements of majority but not full control EM acquisitions to the weaker legal environment and creditor protection in the target nation relative to those in the U.S.

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  • Ismailescu, Iuliana & Col, Burcin, 2022. "Cross-border M&As and credit risk: Evidence from the CDS market," Journal of Empirical Finance, Elsevier, vol. 66(C), pages 51-73.
    • Handle: RePEc:eee:empfin:v:66:y:2022:i:c:p:51-73
    DOI: 10.1016/j.jempfin.2021.12.002
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    More about this item

    Keywords

    Cross-border M&As; CDS spreads; Emerging markets; Investor protection; Wealth transfer;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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