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Acquisition announcements and stock market valuations of acquiring firms' rivals: A test of the growth probability hypothesis in China
Author(s) -
Gaur Ajai S.,
Malhotra Shavin,
Zhu Pengcheng
Publication year - 2013
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2009
Subject(s) - stock market , china , stock (firearms) , economics , test (biology) , financial economics , alternative hypothesis , business , econometrics , industrial organization , monetary economics , null hypothesis , mechanical engineering , paleontology , horse , political science , law , biology , engineering
To examine the impact of acquisition announcements on the stock market returns of rivals of the acquiring firms, we propose a growth probability hypothesis: when an acquisition is announced, it signals the potential for future growth in the acquirer's industry to the market, resulting in positive stock market reactions to rivals of the acquiring firms. We test the growth probability hypothesis with a longitudinal sample of Chinese domestic and cross‐border acquisitions during 1993–2008. The results provide robust support for this hypothesis as a means to explain market reactions to rivals of acquiring firms. We also empirically test and negate alternative theoretical explanations advanced in prior literature to explain positive market reactions to rivals of the target firms. Copyright © 2012 John Wiley & Sons, Ltd.