Studies show that rival firms' share prices will rise in response to the announced acquisition of a competitor, regardless of whether the proposed acquisition is ultimately successful or unsuccessful.

Question

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This is because an acquisition announcement signals to the market potential growth and increased market share for the acquiring company and its competitors. As a result, investors may anticipate increased profitability and bid up the share prices of rival firms. However, if the acquisition is ultimately unsuccessful, share prices of both the acquiring company and its competitors may decline.

Studies Show That Rival Firms' Share Prices Will Rise in Response