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Further analysis of mergers and shareholder wealth effects in European banking

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  • Ahmad Ismail
  • Ian Davidson

Abstract

Although bank mergers have been a topic of ongoing research in the USA, particularly in view of reforms instituted by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, the evidence on shareholder wealth effects in European bank mergers is thin. A key question is whether the changes in the banking industry are applicable worldwide or reflect segmentation at the regional level. In this paper results are provided from a larger and more recent sample than previous studies. In contrast to previous findings, findings here are more consistent with those of US bank mergers, leading to the conclusion that there is less geographical heterogeneity in the industry than previous studies indicated. In particular, low target abnormal returns are found, which, it is believed, stem from the fact that acquirers are not willing to pay high premiums in a competitive environment in which profitability levels are eroding. It was found that abnormal returns are higher in bank-to-bank rather than cross-product deals, suggesting that there is still scope for exploiting economies of scale and market power within the banking sector. The evidence in relation to cross-border deals compared to national deals is mixed, giving some weak evidence in favour of the view that there are gains to geographical diversification.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 1 ()
Pages: 13-30

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:1:p:13-30

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References

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  1. Simon Kwan & Robert A. Eisenbeis, 1999. "Mergers of publicly traded banking organizations revisited," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 26-37.
  2. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
  3. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1.
  4. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
  5. John, Kose & Ofek, Eli, 1995. "Asset sales and increase in focus," Journal of Financial Economics, Elsevier, vol. 37(1), pages 105-126, January.
  6. Tourani Rad, Alireza & Van Beek, Luuk, 1999. "Market valuation of European bank mergers," European Management Journal, Elsevier, vol. 17(5), pages 532-540, October.
  7. Franks, Julian & Harris, Robert & Titman, Sheridan, 1991. "The postmerger share-price performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 29(1), pages 81-96, March.
  8. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  9. Baradwaj, Babu G. & Fraser, Donald R. & Furtado, Eugene P. H., 1990. "Hostile bank takeover offers : Analysis and implications," Journal of Banking & Finance, Elsevier, vol. 14(6), pages 1229-1242, December.
  10. Franks, Julian R & Harris, Robert & Mayer, Colin, 1987. "Means of Payment in Takeovers: Results for the UK and US," CEPR Discussion Papers 200, C.E.P.R. Discussion Papers.
  11. Cybo-Ottone, Alberto & Murgia, Maurizio, 2000. "Mergers and shareholder wealth in European banking," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 831-859, June.
  12. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
  13. Timothy H. Hannan & John D. Wolken, 1989. "Returns to bidders and targets in the acquisition process: evidence from the banking industry," Finance and Economics Discussion Series 64, Board of Governors of the Federal Reserve System (U.S.).
  14. Allen, Paul R. & Sirmans, C. F., 1987. "An analysis of gains to acquiring firm's shareholders : The special case of REITs," Journal of Financial Economics, Elsevier, vol. 18(1), pages 175-184, March.
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Citations

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Cited by:
  1. Peter Egger & Franz R. Hahn, 2006. "Endogenous Bank Mergers and Their Impact on Banking Performance," WIFO Working Papers 271, WIFO.
  2. Ahmad Ismail, 2010. "Are good financial advisors really good? The performance of investment banks in the M&A market," Review of Quantitative Finance and Accounting, Springer, vol. 35(4), pages 411-429, November.
  3. Ioannis Asimakopoulos & Panayiotis Athanasoglou,, 2009. "Revisiting the Merger and Acquisition Performance of European Banks," Working Papers 100, Bank of Greece.
  4. Valkanov,Emil & Kleimeier,Stefanie, 2005. "The Role of Regulatory Capital in International Bank Mergers and Acquisitions," Research Memorandum 017, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  5. Namonyuk, Vasyl, 2008. "Ефективність Міжнародних Злиттів І Поглинань В Банківській Сфері: Роль Синергетичних Вигод
    [Cross-border bank mergers
    ," MPRA Paper 30389, University Library of Munich, Germany.
  6. Chahine, Salim & Ismail, Ahmad, 2009. "Premium, merger fees and the choice of investment banks: A simultaneous analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 159-177, May.

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