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Credit Rating Changes and Post-M&A Firm Value: Assessing the importance of credit ratings changes as a motive for successful M&A

Andrews, Cameron LU and Varrasi, Emiliano (2015) BUSN89 20151
Department of Business Administration
Abstract
This research shows the impact of credit rating change (thereafter CRC) announcements on
the combined entities following mergers and acquisitions. In looking at the effect of CRC
announcements on share prices, we measure the level of influence that a credit upgrade or
downgrade has on the equity value of firms. Existing literature disputes the applicability of
share price as a measure of value creation, preferring instead to measure effects on company
fundamentals. By complimenting the research with impacts of CRC announcements on
operational performance, this study also considers the level of economic value creation in
firms post-M&A. We present evidence of statistically insignificant negative abnormal
returns with downgrade... (More)
This research shows the impact of credit rating change (thereafter CRC) announcements on
the combined entities following mergers and acquisitions. In looking at the effect of CRC
announcements on share prices, we measure the level of influence that a credit upgrade or
downgrade has on the equity value of firms. Existing literature disputes the applicability of
share price as a measure of value creation, preferring instead to measure effects on company
fundamentals. By complimenting the research with impacts of CRC announcements on
operational performance, this study also considers the level of economic value creation in
firms post-M&A. We present evidence of statistically insignificant negative abnormal
returns with downgrade announcements and insignificant positive abnormal returns to
upgrade announcements. In addition, this thesis finds statistically significant negative
abnormal long-term operating performance for downgrades, and less significant effects for
upgrades. Comparing the findings to previous literature on either M&A or CRC
announcements, the research discovers proportional result between abnormal equity returns
and abnormal performance, thus the efficient market hypothesis applies. A small sample size
is the primary limitation, and therefore future research is recommended. (Less)
Please use this url to cite or link to this publication:
author
Andrews, Cameron LU and Varrasi, Emiliano
supervisor
organization
course
BUSN89 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
Credit Rating, Credit Rating Agency, Mergers & Acquisitions, Firm Value, Event Study, Long Term Operating Performance, M&A, Credit Rating Change
language
English
id
5473961
date added to LUP
2015-06-16 16:36:35
date last changed
2015-06-16 16:36:35
@misc{5473961,
  abstract     = {This research shows the impact of credit rating change (thereafter CRC) announcements on
the combined entities following mergers and acquisitions. In looking at the effect of CRC
announcements on share prices, we measure the level of influence that a credit upgrade or
downgrade has on the equity value of firms. Existing literature disputes the applicability of
share price as a measure of value creation, preferring instead to measure effects on company
fundamentals. By complimenting the research with impacts of CRC announcements on
operational performance, this study also considers the level of economic value creation in
firms post-M&A. We present evidence of statistically insignificant negative abnormal
returns with downgrade announcements and insignificant positive abnormal returns to
upgrade announcements. In addition, this thesis finds statistically significant negative
abnormal long-term operating performance for downgrades, and less significant effects for
upgrades. Comparing the findings to previous literature on either M&A or CRC
announcements, the research discovers proportional result between abnormal equity returns
and abnormal performance, thus the efficient market hypothesis applies. A small sample size
is the primary limitation, and therefore future research is recommended.},
  author       = {Andrews, Cameron and Varrasi, Emiliano},
  keyword      = {Credit Rating,Credit Rating Agency,Mergers & Acquisitions,Firm Value,Event Study,Long Term Operating Performance,M&A,Credit Rating Change},
  language     = {eng},
  note         = {Student Paper},
  title        = {Credit Rating Changes and Post-M&A Firm Value: Assessing the importance of credit ratings changes as a motive for successful M&A},
  year         = {2015},
}