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Productivity-conditioned market reaction of US Bank acquisitions during regulation-deregulation eras

Author

Listed:
  • Jamal Ali Al-Khasawneh

    (Gulf University for Science and Technology)

  • Naceur Essaddam

    (Royal Military College of Canada)

  • Salah A. Nusair

    (Lazaridis School of Business and Economics, Wilfrid Laurier)

  • Benito A. Sanchez

    (Kean University)

Abstract

This study investigates whether the market can detect the productivity changes in US bank acquirers during the deregulation of the 1990s and the regulation in the aftermath of the 2008 financial crisis. We find that the market reacts negatively to acquisitions that resulted in productivity decline -especially for medium acquirers- but they show no market reaction to acquisitions that resulted in productivity increase. Moreover, the market reflects the characteristics of the deals, like a target's relative size, profitability, and percentage of short-term stock financing, while it reacts to the possible changes in productivity over longer horizons. These results apply to the deregulation and regulation periods but with longer delays in the market reactions to productivity changes and more persistence in the characteristics of deals across all event windows in the deregulation period. The practical implication for acquirer banks’ is that, besides analyzing acquisition characteristics (such as the target’s profitability, relative size, and leverage), its management has to monitor the bank’s productivity and take actions on any productivity decline.

Suggested Citation

  • Jamal Ali Al-Khasawneh & Naceur Essaddam & Salah A. Nusair & Benito A. Sanchez, 2023. "Productivity-conditioned market reaction of US Bank acquisitions during regulation-deregulation eras," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(2), pages 368-385, June.
    • Handle: RePEc:spr:jecfin:v:47:y:2023:i:2:d:10.1007_s12197-022-09610-x
    DOI: 10.1007/s12197-022-09610-x
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    More about this item

    Keywords

    Malmquist productivity index; US banking sector; Event study; Data Envelopment Analysis (DEA);
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G2 - Financial Economics - - Financial Institutions and Services
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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