Intra-Industry Effects of Completed and Cancelled Cross Border Acquisitions in Australia: A Test of the Acquisition Probability Hypothesis

Posted: 10 Oct 2005

See all articles by Isaac K. Otchere

Isaac K. Otchere

Carleton University - Sprott School of Business

Edwina Ip

Freshfields Bruckhaus Deringer

Abstract

Globalization has led to an increase in cross-border mergers and acquisitions in recent years. Australian firms have featured prominently as acquisition targets in the latest merger wave. Cross-border acquisitions significantly affect industry dynamics and competitive balance. We investigate the intra-industry effects of cross-border acquisition of Australian firms and find, among others, that the target firms' rivals realized significantly positive abnormal returns following both the acquisition proposal and termination announcements. We relate our results to competing hypotheses and find evidence consistent with the acquisition probability hypothesis. Interestingly, we find that the abnormal returns earned by the rival firms at the time of the termination of the acquisition involving their industry counterparts were greater than the returns earned at the time of the acquisition proposal announcement. These results are consistent with the assertion that the likelihood of acquisition of the rival firms increases following the termination of the initial acquisition proposal involving their industry counterparts.

Keywords: cross border acquisition, rival firms, abnormal returns

JEL Classification: G14, G34

Suggested Citation

Otchere, Isaac K. and Ip, Edwina, Intra-Industry Effects of Completed and Cancelled Cross Border Acquisitions in Australia: A Test of the Acquisition Probability Hypothesis. Pacific-Basin Finance Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=813744

Isaac K. Otchere (Contact Author)

Carleton University - Sprott School of Business ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S SB6
Canada
(613) 520-2600 ext 2731 (Phone)
(613) 520-4427 (Fax)

Edwina Ip

Freshfields Bruckhaus Deringer ( email )

65 Fleet Street
London EC4Y 1HS
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,566
PlumX Metrics