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
Date Written: July 22, 2012
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
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