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


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.


Abnormal Return Cash Holding Cumulative Abnormal Return Announcement Date Rival Firm 
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