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The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger

31 Pages Posted: 17 Jun 2008  

Joseph A. Clougherty

University of Illinois at Urbana-Champaign; Centre for Economic Policy Research (CEPR)

Tomaso Duso

German Institute for Economic Research (DIW Berlin); Duesseldorf Institute for Competition Economics (DICE)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2008

Abstract

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.

Keywords: Acquisitions, Event-Study, Mergers, Rivals

JEL Classification: G14, G34, L22, M20

Suggested Citation

Clougherty , Joseph A. and Duso, Tomaso, The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger (June 2008). CEPR Discussion Paper No. DP6867. Available at SSRN: https://ssrn.com/abstract=1146830

Joseph A. Clougherty (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 S. Sixth Street
350 Wohlers Hall, MC-706
Champaign, IL 61820
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Tomaso Duso

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49 211- 81 10235 (Phone)
+49 211- 81 15499 (Fax)

HOME PAGE: http://sites.google.com/site/tomasoduso/home

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