The Acquisition Motive of Newly Credit Rated Firms

Magnus Blomkvist*, Karl Felixson, Eva Liljeblom, Hitesh Vyas, Anup Basnet

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review


A large body of research documents an increased acquisition activity among credit rated firms. We examine whether firms seek an initial credit rating to conduct large scale acquisitions, and whether this acquisition activity is driven by empire building or value creation motives. First, we find that acquisitions are a credible motive for seeking a credit rating, initially rated firms are associated with 13.05pp greater acquisition likelihood and these transactions are more likely to be settled by cash. Second, to recoup the costs of becoming rated, firms conduct large-scale high-quality acquisitions associated with 1.52pp higher acquirer announcement returns, where the higher cumulative abnormal returns are concentrated among firms obtaining a speculative grade initial rating. Third, following the initial rating year, acquisition activity dampens to pre-rating levels. In sum our findings lend support to the notion that previously financial constrained firms enter the bond markets to complement bank financing when conducting large value enhancing acquisitions.
Original languageEnglish
Article number107218
Peer-reviewed scientific journalJournal of Banking and Finance
Pages (from-to)1-14
Number of pages14
Publication statusPublished - 22.05.2024
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • Mergers and acquisitions
  • Capital market access
  • Credit ratings
  • Capital supply
  • Bond ratings
  • Empire building
  • Value creation

Areas of Strength and Areas of High Potential (AoS and AoHP)

  • AoS: Financial management, accounting, and governance


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