Acquisition announcements and stock market valuations of acquiring firms' rivals: A test of the growth probability hypothesis in China
Article first published online: 11 AUG 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 34, Issue 2, pages 215–232, February 2013
How to Cite
Gaur, A. S., Malhotra, S. and Zhu, P. (2013), Acquisition announcements and stock market valuations of acquiring firms' rivals: A test of the growth probability hypothesis in China. Strat. Mgmt. J., 34: 215–232. doi: 10.1002/smj.2009
- Issue published online: 26 DEC 2012
- Article first published online: 11 AUG 2012
- Accepted manuscript online: 25 JUL 2012 08:48AM EST
- Manuscript Revised: 22 JUL 2012
- Manuscript Received: 4 AUG 2010
- growth probability hypothesis;
- rival firms;
- stock market returns;
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.