Finance Seminar: Do Credit Rating Agencies Affect The Acquisition Proces

Date:October 14, Tuesday
Time:10:30-12:00
Where: SOM 1073

Bio: Nihat Aktas is full professor at the Chair of Finance and Capital Markets at WHU-Otto Beisheim School of Management since September 2013. The Chair's research and teaching is in the broad area of finance with a focus on corporate valuation, investment banking, and mergers and acquisitions. He previously worked at Skema Business School (France), EMLYON Business School (France), and Louvain School of Management (Université Catholique de Louvain). Being interested in empirical corporate finance in general, Professor Aktas is the coauthor of several research articles published in peer-reviewed international journals including the Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Economic Journal, Journal of Corporate Finance, and Journal of Banking & Finance. His research has been featured on the programs of various international conferences, such a the American Finance Association and European Finance Association, and quoted in widely read international media, such as the Financial Times and The New York Times. He was a visiting researcher at the Anderson School of Management (UCLA, Los Angeles) in 2001-2002.

Abstract: We examine the effect of credit rating levels on merger and acquisition (M&A) decisions. Consistent with the notion that rating levels have a value on their own as firms seek or maintain specific rating levels, our results emphasize that credit ratings affect M&A decisions in a highly non‐monotonic way. The rating groups which break up the positive relation between credit rating level and acquisition likelihood are the investment/speculative grades and the top notch ratings. However, firms in these two rating categories do better deals than firms in the other rating categories. These results are consistent with credit rating agencies monitoring the acquisition process. Finally, relying on credit rating outlooks and past rating actions as proxies for expected rating changes, we provide further evidence that rating agencies affect the acquisition process.