Abstract
Mergers and Acquisitions (M&As) research has predominantly focused on the antecedents of M&As and post-acquisition outcomes. To have better understanding of the impact of the M&A activities, it is crucial to extend the focus on the industry rivals. This paper investigates when and how an M&A announcement by the acquiring firm affects the market valuations of rival firms. Building on the Resource Based View (RBV) and competitive dynamics literatures, this paper shows, both theoretically and empirically, how the market penalizes rivals when a focal firm in the industry makes an M&A announcement. Also, if the rivals and the focal firm are strategically similar and close competitors, then rivals tend to suffer more negative consequences. The findings of this study extend the understanding of the influence of M&A on competitive dynamics.
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