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Determinants Of Bank Acquisition Premiums: Issues And Evidence

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  • LARRY A. FRIEDER
  • PHILLIP N. PETTY

Abstract

The recent interstate bank merger phenomenon has received little attention in the literature. Specifically, existing studies fail to explain sufficiently the variation of premiums paid and fail to investigate adequately the bank merger wave in terms of its interstate banking context. This study employs models with substantial overall explanatory levels. The interstate banking context proves to be very significant. First, the study considers and finds significant the effective date of a state's interstate statute in relation to a deal's announcement date. This contrasts sharply with other studies. Second, the study uses and also finds significant a binary variable distinguishing intrastate deals from interstate deals. The premiums paid for interstate market entry, on average, exceeded those paid for intrastate transactions. Third, including regional binary variables reveals a pattern of variation in pricing throughout the country. The Southeast, the study's base of comparison, exhibited the highest premium level. Other significant determinants of premiums paid include profitability as measured by returns on equity, growth proxied by state deposit growth and future expected population growth, and charge‐offs to total loans as an indicator of loan quality.

Suggested Citation

  • Larry A. Frieder & Phillip N. Petty, 1991. "Determinants Of Bank Acquisition Premiums: Issues And Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 9(1), pages 12-24, January.
    • Handle: RePEc:bla:coecpo:v:9:y:1991:i:1:p:12-24
    DOI: 10.1111/j.1465-7287.1991.tb00309.x
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    References listed on IDEAS

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    1. Larry A. Frieder & Vincent P. Apilado, 1983. "Bank Holding Company Expansion: A Refocus On Its Financial Rationale," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 6(1), pages 67-81, March.
    2. Jack W. Trifts & Kevin P. Scanlon, 1987. "Interstate Bank Mergers: The Early Evidence," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 10(4), pages 305-313, December.
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    3. Carow, Kenneth A. & Cox, Steven R. & Roden, Dianne M., 2004. "Mutual holding companies: Evidence of conflicts of interest through disparate dividends," Journal of Banking & Finance, Elsevier, vol. 28(2), pages 277-298, February.
    4. Adewale A. Adekiya & Muhammad S. Gawuna, 2015. "Bank Choice Determinant Factors: A Study of University Students in Metropolitan Kano," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 6(4), pages 154-175.

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