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

31 Pages Posted: 26 Oct 2009

See all articles by Joseph A. Clougherty

Joseph A. Clougherty

University of Illinois at Urbana-Champaign

Tomaso Duso

German Institute for Economic Research (DIW Berlin); TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization

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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. We also 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. Further, we find the positive (or non-negative) abnormal returns of rivals to be robust when considering heterogeneity in merger and rival characteristics.

Suggested Citation

Clougherty, Joseph A. and Duso, Tomaso, The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger. Journal of Management Studies, Vol. 46, Issue 8, pp. 1365-1395, December 2009. Available at SSRN: https://ssrn.com/abstract=1492911 or http://dx.doi.org/10.1111/j.1467-6486.2009.00852.x

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

Tomaso Duso

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

Mohrenstraße 58
Berlin, 10117
Germany

TU Berlin- Faculty of Economics and Management - Empirical Industrial Organization ( email )

Berlin, 10585
Germany

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