If a firm generates excessive debt after an acquisition, credit rating agencies will reduce its credit rating. This reflects the fact that the firm
A) is likely to become an acquisition target itself.
B) did not perform adequate due diligence before the acquisition.
C) has become overdiversified.
D) is a riskier investment.

Question

Quizplus · Accepted Answer

When a firm generates excessive debt after an acquisition, credit rating agencies will reduce its credit rating because it indicates that the firm has become a riskier investment. The higher debt makes the firm more vulnerable to economic downturns or changes in market conditions, making it less likely to be able to repay its debts. This decreases the confidence of investors and lenders, ultimately leading to a lower credit rating.

If a Firm Generates Excessive Debt After an Acquisition, Credit