Abnormal returns to rivals of acquisition targets: A test of the `acquisition probability hypothesis

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 outc...

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Bibliographic Details
Published inJournal of financial economics Vol. 55; no. 2; pp. 143 - 171
Main Authors Song, Moon H, Walkling, Ralph A
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.02.2000
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Financial Economics
Subjects
Acquisition
Acquisitions & mergers
Collusion
Economic concentration
Financial economics
Hypotheses
Mergers
Probability
Rates of return
Regression analysis
Rivals
Studies
Take-overs
Target company
Tender offer
Tender offers
Collusion
Tender offer
Rivals
G32
G34
Mergers
G14
K21
G38
Acquisition
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Summary: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.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-405X
1879-2774
DOI:10.1016/S0304-405X(99)00048-3