The Product Market Impact of Minority Stake Acquisitions

We show that partial equity ownership of a rival firm reduces product market competition. Acquisitions of a minority equity stake in rival firms are followed by higher output prices and higher industry profits, particularly when barriers to entry are high. Stock-price reactions of nonparticipating competitors of the acquirer and target are positive while announcement returns of customer firms are negative. Moreover, announcement returns of rivals are significantly higher and those of customers weakly lower when the customer industry is more competitive and when the acquirer and target are larger firms. Data, as supplemental material, are available at https://doi.org/10.1287/mnsc.2016.2575 . This paper was accepted by Amit Seru, finance.