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The impact of horizontal mergers on rivals: Gains to being left outside a merger

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Author Info
Joseph Clougherty (Wissenschaftszentrum Berlin (WZB) and CEPR-London MP Research Unit, Reichpietschufer 50, 10785 Berlin, Germany; clougherty@wzb.eu)
Tomaso Duso (Wissenschaftszentrum Berlin (WZB) and CEPR-London MP Research Unit, Reichpietschufer 50, 10785 Berlin, Germany; duso@wzb.eu)

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Abstract

It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert- identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, ‘future acquisition probability’ does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type.

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Publisher Info
Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number 239.

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Date of creation: Jun 2008
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Handle: RePEc:trf:wpaper:239

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Related research
Keywords: rivals; mergers; acquisitions; event-study;

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
M20 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," Working Papers 90/09, University of Southern Denmark, Department of Environmental and Business Economics. [Downloadable!]
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