The long term effect on horizontal takeovers on the performance of Rival Firms

Abstract

Most prior research on M&A is focused on the firms which are part of the merger or acquisition. However, to date little is known or researched about what the effects of M&As are on rival firms. This paper contributes to the literature on M&As by challenging the received wisdom that takeovers are always disadvantageous for firms in the industry being left outside the takeover. In order to test the research question, a sample of 331 horizontal European takeovers within the period 2011-2017 is used. The results indicate that horizontal takeovers have a positive long term effect on the performance of rival firms. This indicates that rival firms will gain from horizontal takeovers. Moreover, the effect for rival firms of a horizontal takeover is dependent on the effect of the acquiring firms. The takeover generates a positive signal about growth opportunities if the acquiring firms gain from a horizontal takeover.