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The Paradox of Priority

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  • Stanley D. Longhofer
  • Joao A.C. Santos

Abstract

There is a paradox in bank mergers. On average, bank mergers do not create value, yet they continue to occur. Using cross-sectional analysis to examine 54 bank mergers announced between 1991 and 1995, I test several facets of focus and diversification. Upon announcement, the market rewards the mergers of partners that focus their geography and activities and earnings streams. Only one of these facets, focusing earnings streams, enhances long-term performance. Two other circumstances improve long-term performance: when a merger involves a relatively inefficient acquirer and when partners reduce bankruptcy costs.

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Bibliographic Info

Article provided by Financial Management Association in its journal Financial Management.

Volume (Year): 32 (2003)
Issue (Month): 1 (Spring)
Pages:

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Handle: RePEc:fma:fmanag:longhofersantos03

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Cited by:
  1. Haubrich, Joseph G. & Santos, Joao A. C., 2005. "Banking and commerce: A liquidity approach," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 271-294, February.
  2. John Armour, 2008. "The Law and Economics Debate about Secured Lending: Lessons for European LawMaking?," ESRC Centre for Business Research - Working Papers wp362, ESRC Centre for Business Research.
  3. Beatty, Anne & Liao, Scott & Weber, Joseph, 2012. "Evidence on the determinants and economic consequences of delegated monitoring," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 555-576.
  4. Martin Boyer, M. & Gobert, Karine, 2009. "The impact of switching costs on vendor financing," Finance Research Letters, Elsevier, vol. 6(4), pages 236-241, December.
  5. Simona Mateut & Paul Mizen & Ydriss Ziane, . "No Going Back: How the Production Process Affects Access to Short-term Credit," Discussion Papers 12/14, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  6. Boissay, Frédéric & Gropp, Reint, 2007. "Trade credit defaults and liquidity provision by firms," Working Paper Series 0753, European Central Bank.
  7. Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2013. "Are trade creditors relationship lenders?," Japan and the World Economy, Elsevier, vol. 25, pages 24-38.
  8. Simona Mateut & Paul Mizen & Ydriss Ziane, . "No Going Back: The Interactions Between Processed Inventories and Trade Credit," Discussion Papers 11/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  9. John Armour, 2006. "Should we redistribute in insolvency," ESRC Centre for Business Research - Working Papers wp319, ESRC Centre for Business Research.
  10. Mariarosaria Agostino & Francesco Trivieri, 2014. "Does trade credit play a signalling role? Some evidence from SMEs microdata," Small Business Economics, Springer, vol. 42(1), pages 131-151, January.

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