Credit Ratings Influence on Payment Method - A study on European mergers and acquisitions
(2014) BUSN89 20141Department of Business Administration
- Abstract
- The aim of this study is to investigate whether the choice of payment method in mergers and acquisitions is determined by the credit rating existence of the bidder and if the credit rating level has an impact of the financing source. The methods used are Probit and GLM logit regressions. The dependent variables are payment method and fraction of cash with credit rating and credit rating level as the explanatory variables. It has been based on the same methodology as Karampatsas et al (2014) and Faccio and Masulis (2005). The theoretical review consists of previous research on credit ratings and their impact on the payment method, as well as underlying theory of capital structure such as Trade-off theory and Pecking Order theory, and the... (More)
- The aim of this study is to investigate whether the choice of payment method in mergers and acquisitions is determined by the credit rating existence of the bidder and if the credit rating level has an impact of the financing source. The methods used are Probit and GLM logit regressions. The dependent variables are payment method and fraction of cash with credit rating and credit rating level as the explanatory variables. It has been based on the same methodology as Karampatsas et al (2014) and Faccio and Masulis (2005). The theoretical review consists of previous research on credit ratings and their impact on the payment method, as well as underlying theory of capital structure such as Trade-off theory and Pecking Order theory, and the influence of credit rating agencies. The thesis is based on long-term foreign credit ratings from Moody’s and S&P and financial data from 220 firms. The time frame for the sample is between 2000 and 2008. The outcome of this study suggests that there is a negative correlation between credit rating and payment method, hence firms with credit rating are more likely to pay with equity. Instead of maximizing their debt levels, when the market timing is right to issue equity, firms rather want to maintain financial flexibility and the possibility to raise debt for future investments. We found no relationship between the level of credit rating a firms holds and the payment method. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/4499457
- author
- Blommegård Håkansson, Camille LU and Ranhult, Emelie LU
- supervisor
- organization
- course
- BUSN89 20141
- year
- 2014
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- credit ratings., mergers and acquisitions, payment method, capital structure, financing decisions, Credit rating agencies
- language
- English
- id
- 4499457
- date added to LUP
- 2014-07-03 10:18:35
- date last changed
- 2014-07-03 10:18:35
@misc{4499457,
abstract = {{The aim of this study is to investigate whether the choice of payment method in mergers and acquisitions is determined by the credit rating existence of the bidder and if the credit rating level has an impact of the financing source. The methods used are Probit and GLM logit regressions. The dependent variables are payment method and fraction of cash with credit rating and credit rating level as the explanatory variables. It has been based on the same methodology as Karampatsas et al (2014) and Faccio and Masulis (2005). The theoretical review consists of previous research on credit ratings and their impact on the payment method, as well as underlying theory of capital structure such as Trade-off theory and Pecking Order theory, and the influence of credit rating agencies. The thesis is based on long-term foreign credit ratings from Moody’s and S&P and financial data from 220 firms. The time frame for the sample is between 2000 and 2008. The outcome of this study suggests that there is a negative correlation between credit rating and payment method, hence firms with credit rating are more likely to pay with equity. Instead of maximizing their debt levels, when the market timing is right to issue equity, firms rather want to maintain financial flexibility and the possibility to raise debt for future investments. We found no relationship between the level of credit rating a firms holds and the payment method.}},
author = {{Blommegård Håkansson, Camille and Ranhult, Emelie}},
language = {{eng}},
note = {{Student Paper}},
title = {{Credit Ratings Influence on Payment Method - A study on European mergers and acquisitions}},
year = {{2014}},
}