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What do premiums paid for bank M&As reflect? The case of the European Union

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  • Hagendorff, Jens
  • Hernando, Ignacio
  • Nieto, Maria J.
  • Wall, Larry D.

Abstract

We analyze the takeover premiums paid for a sample of domestic and cross-border bank takeovers in the European Union between 1997 and 2007. We find that acquiring banks value profitable, high-growth and low risk targets. We also find that the strength of bank regulation and supervision as well as deposit insurance regimes in Europe have measurable effects on takeover pricing. Stricter bank regulatory regimes and stronger deposit insurance schemes lower the takeover premiums paid by acquiring banks. This result, presumably in anticipation of higher compliance costs, is driven by domestic deals. Similar qualitative results are found for both the entire sample and the sample of publicly traded targets.

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  • Hagendorff, Jens & Hernando, Ignacio & Nieto, Maria J. & Wall, Larry D., 2012. "What do premiums paid for bank M&As reflect? The case of the European Union," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 749-759.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:3:p:749-759
    DOI: 10.1016/j.jbankfin.2011.03.009
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    Cited by:

    1. Leledakis, George N. & Pyrgiotakis, Emmanouil G., 2019. "Market concentration and bank M&As: Evidence from the European sovereign debt crisis," MPRA Paper 95739, University Library of Munich, Germany.
    2. Jens Hagendorff & Maria J. Nieto & Larry D. Wall, 2012. "The safety and soundness effects of bank M&A in the EU," FRB Atlanta Working Paper 2012-13, Federal Reserve Bank of Atlanta.
    3. Jens Hagendorff & Maria J. Nieto, 2015. "The Safety and Soundness Effects of Bank M&A in the EU: Does Prudential Regulation Have any Impact?," European Financial Management, European Financial Management Association, vol. 21(3), pages 462-490, June.
    4. Chung-Hua Shen & Yehning Chen & Hsing-Hua Hsu & Chih-Yung Lin, 2020. "Banking Crises and Market Timing: Evidence from M&As in the Banking Sector," Journal of Financial Services Research, Springer;Western Finance Association, vol. 57(3), pages 315-347, June.
    5. Perafán-Peña, Héctor Fabio & Gill-de-Albornoz, Belén & Giner, Begoña, 2022. "Earnings management of target firms and deal premiums: The role of industry relatedness," The British Accounting Review, Elsevier, vol. 54(2).
    6. Ralph Sonenshine & Evan Kraft, 2015. "What Motivates Banks and Other Financial Services Firms to Merge? An Empirical Analysis of Economic and Institutional Factors," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 66-82, August.
    7. Caiazza, Stefano & Pozzolo, Alberto Franco & Trovato, Giovanni, 2011. "Do domestic and cross-border M&As differ? Cross-country evidence from the banking sector," Economics & Statistics Discussion Papers esdp11061, University of Molise, Department of Economics.
    8. Ishak Ramli, 2015. "Forced Bank Mergers and SME Financing," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 1(8), pages 30-36, July.
    9. Bozos, Konstantinos & Ratnaike, Yasanji C. & Alsharairi, Malek, 2014. "How has the international harmonization of financial reporting standards affected merger premiums within the European Union?," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 48-60.
    10. Mittal, Amit & Garg, Ajay Kumar, 2017. "Private information implications for acquirers and targets in horizontal mergers," MPRA Paper 85355, University Library of Munich, Germany.
    11. Caiazza, Stefano & Clare, Andrew & Pozzolo, Alberto Franco, 2012. "What do bank acquirers want? Evidence from worldwide bank M&A targets," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2641-2659.
    12. George Kyriazopoulos & Evangelos Drymbetas, 2015. "Long-term Performance of Acquirers Involved in Domestic Bank Ms&As in Europe," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(1), pages 56-67, January.
    13. Phil Molyneux & Klaus Schaeck & Tim Zhou, 2011. "‘Too Systemically Important to Fail’ in Banking," Working Papers 11011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    14. John S. Howe & Thibaut G. Morillon, 2017. "Do Mergers and Acquisitions Affect Information Asymmetry in the Banking Sector?," NFI Working Papers 2017-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
    15. Molyneux, Philip & Schaeck, Klaus & Zhou, Tim Mi, 2014. "‘Too systemically important to fail’ in banking – Evidence from bank mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 258-282.

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    More about this item

    Keywords

    Banks; Mergers; Premiums; Europe;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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