How emerging market firms respond to competitors’ M&A performance? The role of competitive signals

Mergers and acquisitions (M&A) are a perennial research topic in the field of international business, yet our knowledge of their competitive interactions remains limited. This paper investigates how and to what extent the M&A decisions of emerging market firms (EMFs) are influenced by the M&A activities of their competitors. Building on the competitive dynamics and signaling literatures, we theorize the market reaction to competitors’ M&A as a competitive signal to focal firms, thus stimulating their acquisition counterattacks. To test our competitive signal view, we use cosine text similarity to define inter-firm rivalry and construct a continuous multi-period difference-in-difference (DD) method. We empirically find that focal firms are more likely to engage in M&A reactions when they perceive competitors’ M&A successes as competitive signals. Moreover, the closer the time and location of the signal generation, the more likely firms are to make counteractions. By proposing the concept of competitive signals, this study contributes to M&A research with characteristics of inter-firm rivalry at the intersection of competitive dynamics and signaling theory.