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

Strategic Management Journal, Volume 34, Issue 2, Pages 215–232, February 2013 DOI:10.1002/smj.2009

Posted: 26 May 2017

See all articles by Ajai Gaur

Ajai Gaur

Rutgers Business School - Newark and New Brunswick

Shavin Malhotra

University of Waterloo

PengCheng Zhu

University of San Diego

Date Written: July 22, 2012

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.

Keywords: Growth Probability Hypothesis, Acquisitions, Rival Firms, Stock Market Returns, China

JEL Classification: G34

Suggested Citation

Gaur, Ajai S. and Malhotra, Shavin and Zhu, Phil, Acquisition Announcements and Stock Market Valuations of Acquiring Firms' Rivals: A Test of the Growth Probability Hypothesis in China (July 22, 2012). Strategic Management Journal, Volume 34, Issue 2, Pages 215–232, February 2013 DOI:10.1002/smj.2009. Available at SSRN: https://ssrn.com/abstract=2973687

Ajai S. Gaur

Rutgers Business School - Newark and New Brunswick ( email )

Newark, NJ
United States

Shavin Malhotra (Contact Author)

University of Waterloo ( email )

200 University Ave W
Waterloo, Ontario N2L 3G1
Canada

Phil Zhu

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110
United States

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