Abnormal Returns to Rivals of Acquisition Targets: A Test of the Acquisition Probability Hypothesis

29 Pages Posted: 29 Jul 2011

See all articles by Moon H. Song

Moon H. Song

San Diego State University - Finance Department

Ralph A. Walkling

Drexel University - Lebow College of Business

Date Written: 2000

Abstract

We develop and test the Acquisition Probability Hypothesis, which asserts that rivals of initial acquisition targets earn abnormal returns because of the increased probability that they will be targets themselves. On average, rival firms earn positive abnormal returns regardless of the form and outcome of acquisition. These returns increase significantly with the magnitude of surprise about the initial acquisition. Moreover, the cross-sectional variation of rival abnormal returns in the announcement period is systematically related to variables associated with the probability of acquisition. In addition, rivals that subsequently become targets earn significantly higher abnormal returns in the announcement period.

Suggested Citation

Song, Moon H. and Walkling, Ralph August, Abnormal Returns to Rivals of Acquisition Targets: A Test of the Acquisition Probability Hypothesis (2000). Journal of Financial Economics, Vol. 55, pp. 143-171, 2000. Available at SSRN: https://ssrn.com/abstract=917815

Moon H. Song (Contact Author)

San Diego State University - Finance Department ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States
619-673-8925 (Phone)
619-594-1573 (Fax)

Ralph August Walkling

Drexel University - Lebow College of Business ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)

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