Information Signaling and Competitive Effects of M&A: Long-Term Performance of Rival Companies

38 Pages Posted: 21 Mar 2008 Last revised: 17 Feb 2010

See all articles by Christian Funke

Christian Funke

Source For Alpha AG

Timo Gebken

Source For Alpha AG

Lutz Johanning

WHU - Otto Beisheim School of Management

Gaston Michel

Source For Alpha AG

Date Written: March 1, 2008

Abstract

In this paper, we investigate the long term performance of rival companies related to acquisition targets. Using a sample of 2,511 deals from 1985 to 2005, we document an under-reaction of capital markets to the information contained in M&A announcements. Following 6,138 large rival gain events due to positive information signaling and 5,408 large rival loss events due to the negative competitive effects of the deal, we observe a return drift for up to 12 months after the announcement. Hence, our results indicate that capital markets do not immediately incorporate the effects of M&A announcements into rival stock prices.

Keywords: Mergers & acquisitions, rival companies, long-term performance

JEL Classification: G12, G14

Suggested Citation

Funke, Christian and Gebken, Timo and Johanning, Lutz and Michel, Gaston, Information Signaling and Competitive Effects of M&A: Long-Term Performance of Rival Companies (March 1, 2008). Available at SSRN: https://ssrn.com/abstract=1100711 or http://dx.doi.org/10.2139/ssrn.1100711

Christian Funke (Contact Author)

Source For Alpha AG ( email )

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HOME PAGE: http://www.source-for-alpha.ch

Timo Gebken

Source For Alpha AG ( email )

Hinterlauben 4
St. Gallen, 9000
Switzerland

Lutz Johanning

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509 720 (Phone)

Gaston Michel

Source For Alpha AG ( email )

Hinterlauben 4
St. Gallen, 9000
Switzerland
+49-611-563561 (Phone)
+49-611-306061 (Fax)

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