Motivated by the paucity of empirical studies examining the impact of mergers and acquisition (M&A) announcements on the acquiring firms' rivals, we made an attempt to uncover the spillover effect of M&A announcements on the stock market reaction of acquiring firms' rivals. Using a sample of 97 M&A announcements during the period from April 2014 to March 2016 and 179 rivals of acquirers, we found that acquiring firms and acquiring firms' rivals react positively to the announcement of M&As. The results of the disaggregated analysis suggest that horizontal M&As do not result in a significant positive reaction of acquiring firms' rivals. Therefore, this study does not support the collusion theory. We also found negative (insignificant) stock market reaction of acquiring firms' rivals upon the announcement of cross-border M&As. However, overall results show that acquiring firms' rivals react positively to the announcement of M&As. This significant positive reaction of acquiring firms' rivals goes in line with signalling theory. Thus, we argue that M&A announcements signal information regarding the growth potential of rivals, which results in positive stock market reaction of acquiring firms' rivals upon the M&A announcements.
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