Credit Ratings, Payment Method, and Group Affiliation as Determinants of Acquisition Performance in India
Authors
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Harshika Jain
Delivery Lead, Consulting & Corporates Acuity Analytics (Corresponding Author), 267 Udyog Vihar, Phase-II, Gurgaon - 122 015, Haryana
https://orcid.org/0000-0002-2383-8928
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Reena Nayyar
Professor, IMI Delhi, B-10, Qutab Institutional Area, Tara Crescent, New Delhi - 110 016
https://orcid.org/0000-0003-4921-8388
DOI:
https://doi.org/10.17010/pijom/2026/v19i9/174708Keywords:
credit ratings, mergers and acquisitions, payment mode, business groups, announcement returns, signaling theory, emerging markets, India.JEL Classification Codes :G14, G24, G32, G34
Publishing Chronology: Paper Submission Date : October 15, 2025 ; Paper sent back for Revision : May 22, 2026 ; Paper Acceptance Date : August 14, 2026 ; Paper Published Online : September 15, 2026.
Abstract
Purpose : This study examined the combined and interactive effects of credit ratings, payment mode, and group affiliation on merger and acquisition (M&A) announcement returns in India. While prior research studied these factors independently, this study provided the first evidence on how these three critical signaling mechanisms interact to influence investor perception in an emerging market context.
Design/Methodology/Approach : We analyzed 860 domestic acquisitions by listed Indian firms from 2011 – 2020, employing event study methodology (Borusyak et al., 2024) to measure cumulative abnormal announcement returns (CAARs). We tested main effects and two- and three-way interactions among credit ratings, payment mode (cash vs. stock), and group affiliation using regression analysis.
Findings : Rated acquirers earned significantly higher CAARs than non-rated acquirers. Credit ratings moderated the payment mode effect—high ratings neutralized the negative signaling traditionally associated with stock-financed acquisitions. Ratings provided greater incremental value for group-affiliated firms, where pyramidal ownership structures created additional information asymmetry. Announcement returns increased continuously with rating quality across 20 rating levels, demonstrating a granular relationship between credit quality and market response.
Practical Implications : The findings suggested that acquirers in emerging markets should consider credit ratings as a strategic tool to enhance deal credibility, particularly when using stock payment or operating within complex ownership structures. Independent certification complements rather than substitutes for group reputation signals.
Originality/Value : This study contributed to signaling theory by demonstrating that credit ratings, payment mode, and group affiliation functioned as complementary rather than substitutive signals. It provided novel evidence that multiple signals interacted in complex ways, with important implications for acquisition financing strategy and corporate disclosure policy in emerging markets.
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References
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