Foreign Acquisition and Credit Risk: Evidence from the U.S. CDS Market

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

55 Pages Posted: 28 May 2016 Last revised: 23 Jan 2023

See all articles by Umit Yilmaz

Umit Yilmaz

Georgetown University - McDonough School of Business

Date Written: October 30, 2019

Abstract

This paper empirically analyzes the effect of foreign block acquisitions on U.S. target firms' credit risk as measured by their credit default swap (CDS) spreads. Foreign block purchases lead to a greater increase in the target firms' CDS premia post-acquisition compared to domestic block purchases. This effect is stronger when foreign owners are geographically and culturally more distant, and when they obtain majority control. The findings are consistent with an asymmetric information hypothesis, in which foreign owners are less effective monitors due to information barriers.

Keywords: Foreign block acquisitions; Credit risk; CDS spreads

JEL Classification: F30, F21, G34, G12, G14, G15

Suggested Citation

Yilmaz, Umit, Foreign Acquisition and Credit Risk: Evidence from the U.S. CDS Market (October 30, 2019). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2785591 or http://dx.doi.org/10.2139/ssrn.2785591

Umit Yilmaz (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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