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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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Suggested Citation

  • Edward J. Kane, 2000. "Incentives for banking megamergers: what motives might regulations infer from event-study evidence?," Proceedings 675, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhpr:675
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