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The impact of credit rating progression on U.S. M&A payment methods – Pre & Post Global Financial Crisis: A comparative perspective

Zaumot, Joud LU and Dorai, Chadwick (2015) BUSN89 20151
Department of Business Administration
Abstract
The aim of this study is to investigate impact of 2008 Global Financial Crisis on the choice of M&A payment methods, more specifically, how M&A payment methods are influenced by credit rating progression pre and post crisis.
The methods used are Ordinary Least Squares and Multinomial probit regressions. The dependent variables for the OLS model is fraction of cash with credit rating level as the explanatory variable. The dependent variable for the MNP model is cash, mixed, or equity with downgrade and upgrade as the main explanatory variables. This study is based on a similar methodology proposed by Karampatsas et al (2014) and Faccio and Masulis (2005).
The outcome of this study suggests that there is a negative relationship between... (More)
The aim of this study is to investigate impact of 2008 Global Financial Crisis on the choice of M&A payment methods, more specifically, how M&A payment methods are influenced by credit rating progression pre and post crisis.
The methods used are Ordinary Least Squares and Multinomial probit regressions. The dependent variables for the OLS model is fraction of cash with credit rating level as the explanatory variable. The dependent variable for the MNP model is cash, mixed, or equity with downgrade and upgrade as the main explanatory variables. This study is based on a similar methodology proposed by Karampatsas et al (2014) and Faccio and Masulis (2005).
The outcome of this study suggests that there is a negative relationship between credit rating level and the fraction of cash used in M&A transactions in the U.S. before and after the Global Financial Crisis. This observation was fundamentally substantiated by deductions that we derived based on theories and literature analyzed from previous literature. We also identified a positive significant relationship between credit rating downgrade and the use of mixed payment method. In essence, the positive relationship portrays a distinct picture of how U.S. M&A landscape has evolved since the crisis and it can be concluded that acquirers are now leaning towards a mixture of cash and equity financing. (Less)
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author
Zaumot, Joud LU and Dorai, Chadwick
supervisor
organization
course
BUSN89 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
Global Financial Crisis, mergers and acquisitions, financing decisions, credit ratings, credit rating agencies, payment method, capital structure.
language
English
id
5468541
date added to LUP
2015-06-16 12:36:09
date last changed
2015-06-16 12:36:09
@misc{5468541,
  abstract     = {The aim of this study is to investigate impact of 2008 Global Financial Crisis on the choice of M&A payment methods, more specifically, how M&A payment methods are influenced by credit rating progression pre and post crisis. 
The methods used are Ordinary Least Squares and Multinomial probit regressions. The dependent variables for the OLS model is fraction of cash with credit rating level as the explanatory variable. The dependent variable for the MNP model is cash, mixed, or equity with downgrade and upgrade as the main explanatory variables. This study is based on a similar methodology proposed by Karampatsas et al (2014) and Faccio and Masulis (2005). 
The outcome of this study suggests that there is a negative relationship between credit rating level and the fraction of cash used in M&A transactions in the U.S. before and after the Global Financial Crisis. This observation was fundamentally substantiated by deductions that we derived based on theories and literature analyzed from previous literature. We also identified a positive significant relationship between credit rating downgrade and the use of mixed payment method. In essence, the positive relationship portrays a distinct picture of how U.S. M&A landscape has evolved since the crisis and it can be concluded that acquirers are now leaning towards a mixture of cash and equity financing.},
  author       = {Zaumot, Joud and Dorai, Chadwick},
  keyword      = {Global Financial Crisis,mergers and acquisitions,financing decisions,credit ratings,credit rating agencies,payment method,capital structure.},
  language     = {eng},
  note         = {Student Paper},
  title        = {The impact of credit rating progression on U.S. M&A payment methods – Pre & Post Global Financial Crisis: A comparative perspective},
  year         = {2015},
}