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Determinants of domestic and cross-border bank acquisitions in the European Union

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Author Info
Ignacio Hernando () (Banco de España)
María J. Nieto () (Banco de España)
Larry Wall () (Federal Reserve Bank of Atlanta)

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Abstract

This paper analyzes the determinants of bank acquisitions both within and across countries in the EU-25 over the period 1997-2004. The findings of this paper are broadly in line with those of the academic literature on the subject, which are mainly based on the US experience. Our results suggest poorly managed EU-25 banks (high cost to income) are more likely to be acquired by other EU-25 banks, in the same country. Nevertheless, this underperformance of target banks does hold for cross border bank acquisitions only if compared to the median of the market. Larger banks are more likely to be acquired by other banks in the same country. The probability of being acquired by another bank in the same market is larger for banks that are quoted in the stock market, which is consistent with the disciplinary character of listing in the stock markets. Finally, banks operating in more concentrated markets are less likely to be acquired by other banks operating within the same country but are more likely to be acquired by banks in other EU-25 countries.

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Publisher Info
Paper provided by Banco de España in its series Banco de España Working Papers with number 0823.

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Length: 37 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:bde:wpaper:0823

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Related research
Keywords: bank acquisitions; merger gains; probability of acquisition;

Other versions of this item:

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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References listed on IDEAS
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  1. Diaz, Belen Diaz & Olalla, Myriam Garcia & Azofra, Sergio Sanfilippo, 2004. "Bank acquisitions and performance: evidence from a panel of European credit entities," Journal of Economics and Business, Elsevier, vol. 56(5), pages 377-404. [Downloadable!] (restricted)
  2. Hannan, Timothy H & Rhoades, Stephen A, 1987. "Acquisition Targets and Motives: The Case of the Banking Industry," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 67-74, February. [Downloadable!] (restricted)
  3. Allen, Franklin & Laura, Bartiloro & Oskar, Kowalewski, 2005. "The Financial System of the EU 25," MPRA Paper 652, University Library of Munich, Germany. [Downloadable!]
  4. Koetter, M. & Bos, J.W.B. & Heid, F. & Kolari, J.W. & Kool, C.J.M. & Porath, D., 2007. "Accounting for distress in bank mergers," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3200-3217, October. [Downloadable!] (restricted)
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  5. Gleb Lanine & Rudi Vander Vennet, 2007. "Microeconomic determinants of acquisitions of Eastern European banks by Western European banks," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(2), pages 285-308, 04. [Downloadable!] (restricted)
  6. Hagendorff, Jens & Collins, Michael & Keasey, Kevin, 2008. "Investor protection and the value effects of bank merger announcements in Europe and the US," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1333-1348, July. [Downloadable!] (restricted)
  7. Buch, Claudia M. & DeLong, Gayle, 2008. "Do weak supervisory systems encourage bank risk-taking?," Journal of Financial Stability, Elsevier, vol. 4(1), pages 23-39, April. [Downloadable!] (restricted)
  8. John K. Ashton & Khac Pham, 2007. "Efficiency and Price Effects of Horizontal Bank Mergers," Working Papers 07-9, Centre for Competition Policy, University of East Anglia. [Downloadable!]
  9. Carbo Valverde, Santiago & Humphrey, David B. & Lopez del Paso, Rafael, 2007. "Do cross-country differences in bank efficiency support a policy of "national champions"?," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2173-2188, July. [Downloadable!] (restricted)
  10. Dean F. Amel & Stephen A. Rhoades, 1989. "Empirical Evidence on the Motives for Bank Mergers," Eastern Economic Journal, Eastern Economic Association, vol. 15(1), pages 17-27, Jan-Mar. [Downloadable!]
  11. Cheng, David C & Gup, Benton E & Wall, Larry D, 1989. "Financial Determinants of Bank Takeovers: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 524-36, November. [Downloadable!] (restricted)
  12. Knapp, Morris & Gart, Alan & Chaudhry, Mukesh, 2006. "The impact of mean reversion of bank profitability on post-merger performance in the banking industry," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3503-3517, December. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. Hadlock, Charles & Houston, Joel & Ryngaert, Michael, 1999. "The role of managerial incentives in bank acquisitions," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 221-249, February. [Downloadable!] (restricted)
  15. Inês Cabral & Frank Dierick & Jukka Vesala, 2002. "Banking integration in the euro area," Occasional Paper Series 06, European Central Bank. [Downloadable!]
  16. Timothy H. Hannan & Steven J. Pilloff, 2006. "Acquisition targets and motives in the banking industry," Finance and Economics Discussion Series 2006-40, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  17. Aigbe Akhigbe & Jeff Madura & Ann Whyte, 2004. "Partial Anticipation and the Gains to Bank Merger Targets," Journal of Financial Services Research, Springer, vol. 26(1), pages 55-71, August. [Downloadable!] (restricted)
  18. Benston, George J & Hunter, William C & Wall, Larry D, 1995. "Motivations for Bank Mergers and Acquisitions: Enhancing the Deposit Insurance Put Option versus Earnings Diversification," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 777-88, August. [Downloadable!] (restricted)
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