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Acquisition Announcements and Stock Market Valuations of Acquiring Firms’ Rivals: A Test of the Growth Probability Hypothesis in China

Strategic Management Journal, Forthcoming

38 Pages Posted: 29 Sep 2011 Last revised: 6 Oct 2011

Ajai Gaur

Rutgers Business School - Newark and New Brunswick

Shavin Malhotra

Ryerson University - Ted Rogers School of Management

Peng Cheng Zhu

University of the Pacific - Eberhart School of Business

Date Written: September 29, 2011

Abstract

To examine the impact of acquisition announcements on the stock market returns of rivals of the acquiring firms, we propose a growth probability hypothesis: When an acquisition is announced, it signals the potential for future growth in the acquirer’s industry to the market, resulting in positive stock market reactions to rivals of the acquiring firms. We test the growth probability hypothesis with a longitudinal sample of Chinese domestic and cross-border acquisitions during 1993-2008. The results provide robust support for this hypothesis as a means to explain market reactions to rivals of acquiring firms. We also empirically test and negate alternative theoretical explanations advanced in prior literature to explain positive market reactions to rivals of the target firms.

Suggested Citation

Gaur, Ajai and Malhotra, Shavin and Zhu, Peng Cheng, Acquisition Announcements and Stock Market Valuations of Acquiring Firms’ Rivals: A Test of the Growth Probability Hypothesis in China (September 29, 2011). Strategic Management Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1935189

Ajai S. Gaur (Contact Author)

Rutgers Business School - Newark and New Brunswick ( email )

Newark, NJ
United States

Shavin Malhotra

Ryerson University - Ted Rogers School of Management ( email )

350 Victoria Street
Toronto, Ontario M5B 2K3
Canada

Peng Cheng Zhu

University of the Pacific - Eberhart School of Business ( email )

3601 Pacific Ave.
Stockton, CA 95211
United States
209-946-3904 (Phone)
209-946-2586 (Fax)

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