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Incentives for Banking Megamergers: What Motives Might Regulators Infer from Event-Study Evidence?

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Author Info
Kane, Edward J
Abstract

Methodologically, this paper frames the opportunity cost of any merger as the value of the alternative deals it precludes or defers. This challenges the standard event-study hypothesis that stock markets benchmark the value of a merger deal by the profits the partners would have earned in stand-alone activity. Substantively, the paper finds that megamergers in banking show two size-related exceptions to the prototypical result that acquirer stock value tends to be unaffected or to fall when a merger is announced. Giant U.S. banking organizations gain value from becoming more gigantic and gain additional value when they absorb an in-state competitor.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 32 (2000)
Issue (Month): 3 (August)
Pages: 671-701
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Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:3:p:671-701

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  4. Hendrik Hakenes & Isabel Schnabel, 2004. "Banks without Parachutes - Competitive Effects of Government Bail-out Policies," Discussion Papers 8, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  5. Erel, Isil, 2007. "The Effect of Bank Mergers on Loan Prices: Evidence from the U.S," Working Paper Series 2006-19, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  6. Elijah Brewer, III & Julapa Jagtiani, 2007. "How much would banks be willing to pay to become "too-big-to-fail" and to capture other benefits?," Research Working Paper RWP 07-05, Federal Reserve Bank of Kansas City. [Downloadable!]
  7. Campa, Jose M. & Hernando, Ignacio, 2005. "M&AS performance in the European financial industry," IESE Research Papers D/588, IESE Business School. [Downloadable!]
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  10. Douglas D. Evanoff & Larry D. Wall, 2000. "Subordinated debt and bank capital reform," Working Paper 2000-24, Federal Reserve Bank of Atlanta. [Downloadable!]
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  11. David A. Becher & Terry L. Campbell II, 2004. "Corporate governance of bank mergers," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 267-287. [Downloadable!]
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  13. S. CLAEYS & G. LANINE & K. SCHOORs, 2005. "Bank Supervision Russian Style: Rules vs Enforcement and Tacit Objectives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/307, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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