Skip to main content
SpringerLink
Log in
Book cover

Selected Essays in Empirical Asset Pricing pp 9–38Cite as

Information Signaling and Competitive Effects of M&A: Long-Term Performance of Rival Companies

  • Chapter

  • 465 Accesses

Abstract

In this essay, I investigate the longterm performance of rival companies related to acquisition targets. Using a sample of 2,511 deals from 1985 to 2005, I document an underreaction of capital markets to the information contained in M&A announcements. Following 6, 138 large rival gain events due to positive information signaling and 5,408 large rival loss events due to the negative competitive effects of the deal, I find a return drift for up to 12 months after the announcement. Hence, my results indicate that capital markets do not immediately incorporate the effects of M&A announcements into rival stock prices.

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   39.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   54.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Jensen, Michael C., and Richard S. Ruback, 1983, The Market for Corporate Control: The Scientific Evidence, Journal of Financial Economics 11(1–4), 5–50.

    Article  Google Scholar 

  • Jarrell, Gregg A., James A. Brickley, and Jeffry M. Netter, 1988, The Market for Corporate Control: The Empirical Evidence since 1980, Journal of Economic Perspectives 2(1), 49–68.

    Google Scholar 

  • Fuller, Kathleen, Jeffry Netter, and Mike Stegemoller, 2002, What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions, Journal of Finance 57(4), 1763–1793.

    Article  Google Scholar 

  • Mitchell, Mark, Todd Pulvino, and Erik Stafford, 2004, Price Pressure around Mergers, Journal of Finance 59(1), 31–63.

    Article  Google Scholar 

  • Moeller, Sara B., Frederik P. Schlingemann, and Rene M. Stulz, 2004, Firm Size and the Gains from Acquisitions, Journal of Financial Economics 73(2), 201–228.

    Article  Google Scholar 

  • Masulis, Ronald W., Cong Wang, and Fei Xie, 2007, Corporate Governance and Acquirer Returns, Journal of Finance 62(4), 1851–1889.

    Article  Google Scholar 

  • Moeller, Sara B., Frederik P. Schlingemann, and Rene M. Stulz, 2007, How Do Diversity of Opinion and Information Asymmetry Affect Acquirer Returns?, Review of Financial Studies 20(5), 2048–2078.

    Google Scholar 

  • Asquith, Paul, 1983, Merger Bids, Uncertainty, and Stockholder Returns, Journal of Financial Economics 11(1–4), 51–83.

    Article  Google Scholar 

  • Loderer, Claudio, and Kenneth Martin, 1992, Postacquisition Performance of Acquiring Firms, Financial Management 21(3), 69–79.

    Article  Google Scholar 

  • Agrawal, Anup, Jeffrey F. Jaffe, and Gershon N. Mandelker, 1992, The Post-Merger Performance of Acquiring Firms: A Re-Examination of an Anomaly, Journal of Finance 47(4), 1605–1621.

    Article  Google Scholar 

  • Andrade, Gregor, Mark Mitchell, and Erik Stafford, 2001, New Evidence and Perspectives on Mergers, Journal of Economic Perspectives 15(2), 103–120.

    Article  Google Scholar 

  • Shahrur, Husayn, 2005, Industry Structure and Horizontal Takeovers: Analysis of Wealth Effects on Rivals, Suppliers, and Corporate Customers, Journal of Financial Economics 76(1), 61–98.

    Article  Google Scholar 

  • Fama, Eugene F., and Kenneth R. French, 1997, Industry Costs of Equity, Journal of Financial Economics 43(2), 153–193.

    Article  Google Scholar 

  • Akhigbe, Aigbe, and Anna D. Martin, 2000, Information-Signaling and Competitive Effects of Foreign Acquisitions in the US, Journal of Banking and Finance 24(8), 1307–1321.

    Article  Google Scholar 

  • Brown, Keith C., W. V. Harlow, and Seha M. Tinic, 1988, Risk Aversion, Uncertain Information, and Market Efficiency, Journal of Financial Economics 22(2), 355–385.

    Article  Google Scholar 

  • Bremer, Marc, and Richard J. Sweeney, 1991, The Reversal of Large Stock-Price Decreases, Journal of Finance 46(2), 747–754.

    Article  Google Scholar 

  • Cox, Don R., and David R. Peterson, 1994, Stock Returns Following Large One-Day Declines: Evidence on Short-Term Reversals and Longer-Term Performance, Journal of Finance 49(1), 255–267.

    Article  Google Scholar 

  • Park, Jinwoo, 1995, A Market Microstructure Explanation for Predictable Variations in Stock Returns Following Large Price Changes, Journal of Financial and Quantitative Analysis 30(2), 241–256.

    Article  Google Scholar 

  • Pritamani, Mahesh, and Vijay Singal, 2001, Return Predictability Following Large Price Changes and Information Releases, Journal of Banking and Finance 25(4), 631–656.

    Article  Google Scholar 

  • Brown, Stephen J., and Jerold B. Warner, 1980, Measuring Security Price Performance, Journal of Financial Economics 8(3), 205–258.

    Article  Google Scholar 

  • Song, Moon H., and Ralph A. Walkling, 2000, Abnormal Returns to Rivals of Acquisition Targets: A Test of the ‘Acquisition Probability Hypothesis.’, Journal of Financial Economics 55(2), 143–171.

    Article  Google Scholar 

  • Fee, C. Edward, and Shawn Thomas, 2004, Sources of Gains in Horizontal Mergers: Evidence from Customer, Supplier, and Rival Firms, Journal of Financial Economics 74(3), 423–460.

    Article  Google Scholar 

  • Barber, Brad M., and John D. Lyon, 1997, Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics, Journal of Financial Economics 43(3), 341–372.

    Article  Google Scholar 

  • Kothari, S. P., and Jerold B. Warner, 1997, Measuring Long-Horizon Security Price Performance, Journal of Financial Economics 43(3), 301–339.

    Article  Google Scholar 

  • Fama, Eugene F., 1998, Market Efficiency, Long-Term Returns, and Behavioral Finance, Journal of Financial Economics 49(3), 283–306.

    Article  Google Scholar 

  • Lyon, John D., Brad M. Barber, and Chih-Ling Tsai, 1999, Improved Methods for Tests of Long-Run Abnormal Stock Returns, Journal of Finance 54(1), 165–201.

    Article  Google Scholar 

  • Mitchell, Mark L., and Erik Stafford, 2000, Managerial Decisions and Long-Term Stock Price Performance, Journal of Business 73(3), 287–329.

    Article  Google Scholar 

  • Kothari, S. P., and Jerold B. Warner, 2007, Econometrics of Event Studies, in B. Espen Eckbo, ed.: Handbook of Corporate Finance: Empirical Corporate Finance, Elsevier/North Holland, Amsterdam/Oxford.

    Google Scholar 

  • Fama, Eugene F., and Kenneth R. French, 1993, Common Risk Factors in the Returns on Stock and Bonds, Journal of Financial Economics 33(1), 3–56.

    Article  Google Scholar 

  • White, Halbert, 1980, A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica 48(4), 817–838.

    Article  Google Scholar 

  • Fama, Eugene F., and Kenneth R. French, 2007, Dissecting Anomalies, Journal of Finance, forthcoming.

    Google Scholar 

Download references

Rights and permissions

Reprints and permissions

Copyright information

© 2008 Gabler | GWV Fachverlage GmbH, Wiesbaden

About this chapter

Cite this chapter

(2008). Information Signaling and Competitive Effects of M&A: Long-Term Performance of Rival Companies. In: Selected Essays in Empirical Asset Pricing. Gabler. https://doi.org/10.1007/978-3-8349-9814-9_2

Download citation

Publish with us

Policies and ethics

Search

Navigation