This paper examines the prices bid for target banks in the early to mid-1980s. Two hypotheses are examined: (1) the earnings diversification hypothesis which holds that banks would bid more for merger partners that offered risk-reduction opportunities, and (2) the deposit insurance put-option hypothesis, which holds that acquirers would bid more for targets that offered opportunities to increase risk and/or become 'too big to fail.' An empirical analysis of a sample of 302 mergers produces results that are consistent with the earnings diversification hypothesis and inconsistent with the deposit insurance put-option hypothesis. Copyright 1995 by Ohio State University Press.
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Volume (Year): 27 (1995) Issue (Month): 3 (August) Pages: 777-88 Download reference. The following formats are available: HTML
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