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Credit Default Swaps and Corporate Acquisitions

Guest, P, Karampatsas, N, Petmezas, D and Travlos, NG (2016) Credit Default Swaps and Corporate Acquisitions [Working Paper]

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Abstract

This study shows that credit default swap (CDS) reference firms are more likely to conduct acquisitions. In economic terms, CDS reference firms have a 5% higher acquisition propensity than non-CDS firms. Additionally, CDS reference acquirers experience higher announcement returns. This is driven by CDS reference acquirers with high credit risk, who are also associated with a lower probability of default. The positive effect of CDS on acquisition outcomes is attributable to the empty creditor threat posed by CDS-protected creditors. Finally, consistent with CDS increasing debt capacity, cash is more likely to be used as the payment method.

Item Type: Working Paper
Subjects : Finance
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
AuthorsEmailORCID
Guest, PUNSPECIFIEDUNSPECIFIED
Karampatsas, NUNSPECIFIEDUNSPECIFIED
Petmezas, DUNSPECIFIEDUNSPECIFIED
Travlos, NGUNSPECIFIEDUNSPECIFIED
Date : 27 March 2016
Copyright Disclaimer : Author's accepted manuscript submitted to SSRN on March 16 2016
Uncontrolled Keywords : Credit Default Swaps (CDS), Mergers and Acquisitions, Abnormal Returns, Probability of Default, Method of Payment, Empty Creditor Threat
Related URLs :
Depositing User : Symplectic Elements
Date Deposited : 29 Jul 2016 14:17
Last Modified : 29 Jul 2016 14:17
URI: http://epubs.surrey.ac.uk/id/eprint/811269

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