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
Date Written: September 29, 2011
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.
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