Credit Market Driven Acquisitions

In a comprehensive sample of takeovers from 1983–2020, we show that credit market conditions predict takeover activity. A deterioration in aggregate credit quality predicts an increase in the number and aggregate value of takeovers in years two and three, particularly for cash-financed deals, and lower activity in years five and six. We find similar results in international samples and when omitting the financial crisis. Worse aggregate credit quality predicts higher firm-level debt issuance and probability of a cash-financed deal announcement over the following three quarters. Our results are consistent with a framework with biased credit market investors and rational managers.