Rivals’ reactions to mergers and acquisitions: competitive dynamics and institutional arbitrage perspectives.
When and why do firms respond to mergers and acquisitions of their competitors? The competitive dynamics literature has primarily examined firm and industry level factors to explain competitive actions and responses. In this article, we focus on how institutions influence and shape the competitive interactions on the market. Through cross-border M&As, firms can exploit the institutional differences between the acquiring and target firms’ countries – i.e., institutional arbitrage opportunities – to enhance their resources and competitive position. We argue that the gains from institutional arbitrage opportunities can pose a substantial threat for the rivals of the M&A partners, and consequently provoke a greater number of rivals’ interfirm responses. Finally, we posit that the effect of institutional arbitrage opportunities on the variation in the number of rivals’ interfirm responses is moderated by rivals’ strategic orientation and resources. Based on an analysis of rivals affected by 148 large horizontal cross-border M&As announced in the manufacturing industries during 1999-2014, we found evidence consistent with our predictions.