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Credit spreads and merger pricing

Author

Listed:
  • Ding Du

    (Northern Arizona University)

  • Mason Gerety

    (Northern Arizona University)

Abstract

Previous studies (Axelson et al. in J Finance 68(6):2223–2267, 2013; Gorbenko and Malenko in J Finance 69(6):2513–2555, 2014) find that transaction prices and maximum-willingness-to-pay for targets are negatively correlated with credit market conditions. We extend the literature along two dimensions. First, we focus on takeover premiums (which account for market conditions), not transaction prices or maximum-willingness-to-pay. Second, we use predicted changes in credit spreads (which are less likely driven by confounding factors), not contemporaneous changes in credit spreads. Empirically, we find that predicted changes in the credit spread negatively impact takeover premiums, and that the correlation between predicted credit spreads and takeover premiums is not significantly different between private and public acquisitions.

Suggested Citation

  • Ding Du & Mason Gerety, 2018. "Credit spreads and merger pricing," Journal of Asset Management, Palgrave Macmillan, vol. 19(3), pages 169-178, May.
    • Handle: RePEc:pal:assmgt:v:19:y:2018:i:3:d:10.1057_s41260-017-0072-5
    DOI: 10.1057/s41260-017-0072-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit spreads; Takeover premium; Merger and acquisition;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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