The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger
Joseph A. Clougherty
University of Illinois at Urbana-Champaign; Centre for Economic Policy Research (CEPR)
German Institute for Economic Research (DIW Berlin); Duesseldorf Institute for Competition Economics (DICE)
CEPR Discussion Paper No. DP6867
It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, 'future acquisition probability' does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type.
Number of Pages in PDF File: 31
Keywords: Acquisitions, Event-Study, Mergers, Rivals
JEL Classification: G14, G34, L22, M20
Date posted: June 17, 2008
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