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Incentives for banking megamergers: what motives might regulations infer from event-study evidence?

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  • Edward J. Kane

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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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Proceedings with number 675.

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Length: 630-658
Date of creation: 2000
Date of revision:
Publication status: Published in Conference on Bank Structure and Competition (2000 : 36th) ; The changing financial industry structure and regulation : bridging states, countries, and industries
Handle: RePEc:fip:fedhpr:675

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Related research

Keywords: Bank mergers ; Bank examination ; Bank supervision;

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  1. Do We Need Big Banks?
    by Mark Thoma in Economist's View on 2011-03-18 07:24:00
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