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
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: Suggested Citation