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Credit Rating Levels and Acquisitions: The European Evidence

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Listed:
  • Magnus Blomkvist

    (Audencia Business School)

  • Johannes Kortekangas

    (Hanken School of Economics)

  • Hitesh Vyas

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," Post-Print hal-03196701, HAL.
    • Handle: RePEc:hal:journl:hal-03196701
    Note: View the original document on HAL open archive server: https://hal.science/hal-03196701
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    Keywords

    Mergers and Acquisitions; Credit Ratings; Financial Constraints;
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