Abnormal Returns to Rivals of Acquisition Targets: A Test of the Acquisition Probability Hypothesis
Moon H. Song
San Diego State University - Finance Department
Ralph A. Walkling
Drexel University - Lebow College of Business
Journal of Financial Economics, Vol. 55, pp. 143-171, 2000
We develop and test the Acquisition Probability Hypothesis, which asserts that rivals of initial acquisition targets earn abnormal returns because of the increased probability that they will be targets themselves. On average, rival firms earn positive abnormal returns regardless of the form and outcome of acquisition. These returns increase significantly with the magnitude of surprise about the initial acquisition. Moreover, the cross-sectional variation of rival abnormal returns in the announcement period is systematically related to variables associated with the probability of acquisition. In addition, rivals that subsequently become targets earn significantly higher abnormal returns in the announcement period.
Number of Pages in PDF File: 29Accepted Paper Series
Date posted: July 29, 2011
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