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Are credit rating disagreements priced in the M&A market?

Author

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  • Hasan, Iftekhar
  • Huang, He
  • To, Thomas Y.

Abstract

This paper examines the effect of credit rating disagreements on merger and acquisition (M&A) decisions. We show that acquirers with split ratings prefer to use stock to finance their acquisitions. More importantly, we find that acquirers with split ratings experience lower announcement returns. Further analysis shows that overpayment by acquirers with split ratings is concentrated in acquirers with entrenched managers. Our results are robust to alternative identification strategies. Overall, our evidence indicates that credit rating disagreements are heavily priced in the M&A market.

Suggested Citation

  • Hasan, Iftekhar & Huang, He & To, Thomas Y., 2021. "Are credit rating disagreements priced in the M&A market?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:intfin:v:72:y:2021:i:c:s1042443121000548
    DOI: 10.1016/j.intfin.2021.101335
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    2. Zou, Jin & Yan, Jingzhou & Deng, Guoying, 2023. "ESG rating confusion and bond spreads," Economic Modelling, Elsevier, vol. 129(C).
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    4. Tanaka, Takanori, 2024. "Split bond ratings: Evidence from Japanese credit rating agencies," Research in International Business and Finance, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Bond ratings; Method of payment; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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