Are Credit Rating Disagreements Priced in the M&A Market?

42 Pages Posted: 22 Mar 2021

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

He Huang

The University of Sydney, Discipline of Finance

Thomas Y. To

University of Sydney Business School

Date Written: March 20, 2021

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.

Keywords: Bond ratings, Method of payment, Merger and acquisitions

JEL Classification: G24, G33, J33

Suggested Citation

Hasan, Iftekhar and Huang, He and To, Thomas Yin, Are Credit Rating Disagreements Priced in the M&A Market? (March 20, 2021). Journal of International Financial Markets, Institutions and Money, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3808400

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

He Huang

The University of Sydney, Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Thomas Yin To (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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