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Efficiency vs. agency motivations for bank takeovers: some empirical evidence

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Author Info
Alessio De Vincenzo () (Bank of Italy)
Claudio Doria () (Bank of Italy)
Carmelo Salleo () (Bank of Italy)
Abstract

Bank takeovers result on average in little improvements in performance. This may be due to conflicting driving forces behind them; however these have seldom been studied. We study directly the motivations for bank acquisitions by analyzing the prices paid for them, under the assumption that bankers are willing to pay for what they want. We find that there is no evidence that bankers are ready to pay for possible economies of scale and scope; on the other hand buyers expect to transfer their superior managerial skills to targets. Market power seems to hold little value while entry (or diversification) commands a premium. Agency issues at the buyer are also an important motivation for takeovers: other things being equal acquirers with more free capital are willing to pay more.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 587.

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Date of creation: May 2006
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Handle: RePEc:bdi:wptemi:td_587_06

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Related research
Keywords: banking; M&; As; pricing; corporate governance; market power;

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
L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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  1. Zhang, Hao, 1995. "Wealth Effects of US Bank Takeovers," Applied Financial Economics, Taylor and Francis Journals, vol. 5(5), pages 329-36, October. [Downloadable!] (restricted)
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    Other versions:
  4. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May. [Downloadable!] (restricted)
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    Other versions:
  6. Houston, Joel F. & James, Christopher M. & Ryngaert, Michael D., 2001. "Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 285-331, May. [Downloadable!] (restricted)
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    Other versions:
  8. Aruna Srinivasan, 1992. "Are there cost savings from bank mergers?," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 17-28.
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  10. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December. [Downloadable!] (restricted)
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  18. 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)
  19. Cornett, Marcia Millon & Hovakimian, Gayane & Palia, Darius & Tehranian, Hassan, 2003. "The impact of the manager-shareholder conflict on acquiring bank returns," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 103-131, January. [Downloadable!] (restricted)
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