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An acquiring firm's strategic objective and post-acquisition stock price performance are determined, at least in part, by the industry's outlook and structure, and by the acquiring firm's market position. Acquiring-firm managers are more likely to acquire a related target firm when the industry outlook is favourable, the four-firm concentration ratio is low, and the firm is a major competitor. Related acquisitions by industry leaders are the most successful in terms of increasing acquiring-firm shareholder wealth. However, we find no evidence that acquiring firms systematically gain a competitive advantage over rival firms, when the rival firms are classified by size and competitive position.
