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MERGERS AND ACQUISITIONS THE INFLUENCE OF CREDIT RATINGS ON THE PAYMENT FORM IN EUROPE

Dubois, Adrien
(2016)

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Details

Supervisors
Tesolin, Giorgio
Faculty
Louvain School of Management
Degree label
Master [120] en Ingénieur de gestion
Abstract
The aim of this thesis is to investigate if a credit rating and the quality of this one impact the payment form in European mergers and acquisitions. This study is based on a research paper that establishes a link between the rating quality and the use of cash in American mergers and acquisitions. The empirical analysis is performed through a Tobit model where the fraction of cash used to finance deals is the dependent variable. A second analysis use an ordered Probit model where the payments form (stock, mix or cash) is the dependent variable. Hausman tests are performed to ensure that the main variables are exogenous. This research uses a sample of 277 firms whose 125 are rated. The rating is the long-term foreign credit ratings from Standard and Poor’s prior the announcement. Several firm and deal characteristics as well as market conditions are taking into account. The results indicate that the existence of a credit rating affects the payment form of M&A in Europe. Firms holding a rating are more likely to settle deals with cash, be it with internal financing or through debt rising. We link this to the lower financial constraints and enhanced access to public debt markets implied by the existence of a rating. It allows firm to issue more debt to finance their deals with cash. On the other hand, there is no evidence that the quality of the rating has an impact on the payment form. We link this to the fact that rated firms limit their debt level to maintain their rating quality.