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Does Acquisition Trigger Follow-up Acquisitions? The Role of Relative Financial Constraints

Relative financial constraints can affect firms’ aggressiveness in industry competition. Following peer firms’ acquisitions, the non-constrained rivals tend to become acquirers while the constrained rivals are more likely to get acquired. Also, firms may become worse off if they do not make follow-up acquisitions. For the preceding acquisitions, the acquirer would earn higher abnormal returns and profit margins if the rivals are more financially constrained, which suggests the acquirers’ greater market power absent the rivals’ financial capability to compete. These results indicate that considering the non-merging rivals’ relative financial constraints can be an alternative way to detect anticompetitive acquisitions.