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CFS Working Paper Series, Universität Frankfurt a. M. >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/57363
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| Title: | | Is rated debt arm's length? Evidence from mergers and acquisitions  |
| Authors: | | Gropp, Reint Hirsch, Christian Krahnen, Jan Pieter |
| Issue Date: | | 2011 |
| Series/Report no.: | | CFS Working Paper 2011/10 |
| Abstract: | | In this paper we challenge the view that corporate bonds are always arm's length debt. We analyze the effect of bond ratings on the stock price return to acquirers in M&A transactions, which tend to have significant effects on creditor wealth. We find acquirers abnormal returns to be higher if they are unrated, controlling for a wide variety of other effects identified in the literature. Tracing the difference in returns to distinct managerial decisions, we find that, everything else constant, rated firms increase their leverage in takeover transactions by less than their unrated counterparts. Consistent with a significant role for rating agencies, we find monitoring effects to be strongest when acquirer bonds are rated at the borderline between investment grade and junk. Finally, we are able to empirically exclude a large number of alternative explanations for the empirical regularities that we uncover. |
| Subjects: | | Acquisitions Credit Ratings Mergers and Acquisitions Arm's Length Debt Abnormal Returns |
| JEL: | | G21 G24 G32 G34 |
| Persistent Identifier of the first edition: | | urn:nbn:de:hebis:30-101925 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CFS Working Paper Series, Universität Frankfurt a. M.
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