Real effects of stock market valuations: Local valuation spillovers in M&A activity

We document novel evidence of local valuation spillovers across a large sample of public firms during 1990-2019. Using a mutually exclusive stratification of subjects and local peers based on whether firms are from the most salient industries regionally, we document a strong positive association between firm-level acquisitiveness and exogenous variation in local peer valuations. Our measure for exogenous variation in local peers’ valuations does not rely on outflow-induced price pressures. We find evidence that exogenous peer effects and correlated effects explain valuation spillovers in acquisitiveness, which suggests managers are unable to separate noise from information content in local peer valuations.