Credit Ratings and Acquisitions

Nihat Aktas

WHU – Otto Beisheim School of Management

Nikolaos Karampatsas

University of Surrey – Surrey Business School

Dimitris Petmezas

University of Surrey – Surrey Business School

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

November 18, 2015


We document a curvilinear relation between credit ratings and acquisitions. Acquisitions first increase and then decrease as ratings improve, with a high around the A− threshold. The increase at low rating levels is accompanied by lower announcement returns. Acquisitions have a negative impact on future ratings for highly-rated firms, and a positive impact for firms with low ratings, even after controlling for all the characteristics potentially influenced by the transaction. These results indicate that credit ratings exert substantial influence on the acquisition process, and that rating agencies pay particular attention to acquisitions when deciding on the creditworthiness of firms.

Credit Ratings and Acquisitions

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