Year of Graduation
Impact of Credit Ratings on the Choice of Payment Method in Mergers and Acquisitions in the American Market
The choice of payment method in M&A deals is an important strategic decision for bidders. Companies' credit ratings, in turn, play an important role in the companies' performance by reducing the information asymmetry at the market and lowering the cost of capital for the firms. There are many researches about the connection between credit ratings and the capital structure of the companies and about the connection between capital structure and the choice of payment method in mergers and acquisitions. However, there is only one research about the direct impact of credit ratings on the choice of payment method in takeover bids. That is why the objective of this research is to assess the impact of credit rating existence and level of the bidders on the choice of payment method in M&A deals. For this purpose the set of 4058 M&A deals conducted by the American bidders from 2010 to 2016 was researched and the ordered outcome regression models were used. It was proven that there is a positive relation between firms' credit rating existence and the likelihood of cash being used as a form of financing in a takeover bid. The same relation was found between the levels of credit and synthetic ratings and the choice of cash method of payment. Besides, it is less likely that the companies will use cash in M&A deals if they are close to a change in their credit ratings.