Assessment and Analysis of the Cost of Debt Changes after Domestic Russian Mergers and Acquisitions

• Main Author: V. B. Mikhal’chuk
• Format: Article
• Language: Russian
• Published: Government of the Russian Federation, Financial University 2019-12-01
• Series: Финансы: теория и практика
• Subjects: mergers and acquisitions; synergy; credit rating; risk premium; corporate bonds; risk-free interest rate; cost of debt; strategy
• Online Access: https://financetp.fa.ru/jour/article/view/929

The study analyzes the impact of domestic Russian mergers and acquisitions on the cost of debt for companies involved in deals. The author systematized the existing findings in this area in developed and emerging markets. The methodology developed by the author for analyzing the impact of mergers and acquisitions on the cost of debt considers the specifics of the Russian market and can be used in conditions of limited information about nonpublic companies. The estimation of the cost of debt is based on synthetic credit ratings of the companies involved in the deal and the corresponding yield spreads between corporate and government bonds. The methodology was tested on a sample of 73 domestic deals completed in 2014–2016. Random effects model with robust standard errors was used to test the significance of factors affecting the cost of debt. This research makes several practical contributions. First, in the studied sample, deals lead to an increase of the cost of debt by 3,1% within a year after the deal. Second, significant factors affecting the change in the cost of debt after domestic Russian mergers and acquisitions were identified. The cost of debt is reduced by the purchase of large companies during the period of economic growth. There is a significant impact of the deal value on the increase of the cost of debt. Company management, academic researchers and experts can use research results to assess potential deals of mergers and acquisitions on emerging markets. The developed methodology can be applied to mergers and acquisitions in other countries to analyze the features of these markets.