Discussion paper

DP10719 Credit Ratings and Acquisitions

We document a curvilinear relation between credit ratings and acquisitions, where acquisitiveness first goes up and then down as credit ratings increase, with a maximum around the A minus threshold. This pattern is broken by firms around the high-yield cut-off, which are more reluctant to make acquisitions. The increase in acquisitiveness at low rating levels is accompanied by lower announcement returns. Acquisitions have a negative impact on credit ratings, even after controlling for all the characteristics potentially influenced by the transaction itself, and especially for mergers that are poorly received by the stock market. This work suggests that a firm?s credit rating exerts substantial influence on the acquisition process and that rating agencies pay particular attention to acquisitions when deciding on the creditworthiness of firms.


Servaes, H (2015), ‘DP10719 Credit Ratings and Acquisitions‘, CEPR Discussion Paper No. 10719. CEPR Press, Paris & London. https://cepr.org/publications/dp10719