Competitive effects of US and international acquisitions: examining the abnormal returns to rivals of acquisition targets

In the context of interconnected businesses and financial markets, we examine the competitive dynamics and the stock price discovery process of international acquisitions, and we measure its effects on the US market. To achieve this, we analyze a sample of large international and US acquisitions, and we compare its effects on the stock price abnormal returns of US-based rivals. This aims to improve our understanding of the information content of international mergers announcement. We observe that international and US target acquisitions generate positive abnormal returns to the US-based rivals, but the effect is statistically significant only for US target acquisitions. We also observe that international deals are related to lower abnormal returns to the US rivals during the run-up period. The abnormal returns to the rivals during the run-up period are positively related to the abnormal returns to the targets. Also, we observe that smaller deal values are associated with higher abnormal returns to the rivals during the run-up period. We do not identify statistical differences to the rival’s stock price abnormal returns when targets are publicly listed vs unlisted. We highlight several deal-specific and firm-specific characteristics that are statistically significant to explain the abnormal return to the targets, but that are not significant to explain the abnormal returns to the rivals. These include: the acquirer public status, the proportion of cash in the transaction, the premium paid, the horizontal nature of the deal and the identification of the target as Initial Industry Target. The abnormal returns to the targets are consistent with previous studies. Targets of US and international acquisitions earn significant positive abnormal returns. US targets earn on average significant higher abnormal returns than international targets. Also, we observe that horizontal mergers are associated with higher abnormal returns to the targets than nonhorizontal mergers. Targets identified as Initial Industry Target realize significant lower abnormal returns. Finally, other deal-specific characteristics appear related to the abnormal returns to the targets, including the deal value, the acquirer public status, the proportion of cash in the transaction and the premium paid