The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger

Joseph A. Clougherty () and Tomaso Duso ()

No 6867, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Acquisitions; Event-Study; Mergers; Rivals (search for similar items in EconPapers)
JEL-codes: G14 G34 L22 M20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-com and nep-ind
Date: Written 2008-06

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Working Paper: The impact of horizontal mergers on rivals: Gains to being left outside a merger (2008)
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