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This study examines how the mergers and acquisitions (M&A) environment affects gains to merging firms and their industry rivals. Using a large sample of Canadian acquisitions announcements from 1994 to 2009, we find that during M&A, the shareholders of Canadian merging firms experience indeed wealth creation. Consistent with the signaling hypothesis, we find that the stock price of acquiring firms’ rivals is more favorable after a dormant period within a specific industry. We also find that in line with the competitive advantage hypothesis, the stock price of target firms’ rivals is negative when the industry has a high degree of concentration.

Gains to Merging Firms and Their Rivals: Evidence from Canada