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Diversification versus specialization: an event study of M&As in the European banking industry

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  • Laetitia Lepetit
  • Stephanie Patry
  • Philippe Rous

Abstract

This study examines the stock market valuation in terms of expected gains of mergers and acquisitions (M&As) amongst banks that were announced from 1991 to 2001 in 13 European markets. M&As are classified according to activity, geographic specialization or diversification. A bivariate GARCH model is used to estimate abnormal returns taking beta conditional variability into account. The results document that there is, on average, a positive and significant increase in value for the group of targets' banks. Moreover, it is found that on average there is a positive and significant market reaction for the two types of transactions: cross-product diversification and geographic specialization.

Suggested Citation

  • Laetitia Lepetit & Stephanie Patry & Philippe Rous, 2004. "Diversification versus specialization: an event study of M&As in the European banking industry," Applied Financial Economics, Taylor & Francis Journals, vol. 14(9), pages 663-669.
  • Handle: RePEc:taf:apfiec:v:14:y:2004:i:9:p:663-669
    DOI: 10.1080/0960310042000233430
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    References listed on IDEAS

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    1. Fabozzi, Frank J. & Francis, Jack Clark, 1978. "Beta as a Random Coefficient," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(01), pages 101-116, March.
    2. Houston, Joel F. & Ryngaert, Michael D., 1994. "The overall gains from large bank mergers," Journal of Banking & Finance, Elsevier, vol. 18(6), pages 1155-1176, December.
    3. Timothy H. Hannan & John D. Wolken, 1989. "Returns to bidders and targets in the acquisition process: evidence from the banking industry," Finance and Economics Discussion Series 64, Board of Governors of the Federal Reserve System (U.S.).
    4. Cybo-Ottone, Alberto & Murgia, Maurizio, 2000. "Mergers and shareholder wealth in European banking," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 831-859, June.
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    Cited by:

    1. Mei, Bin & Sun, Changyou, 2008. "Event analysis of the impact of mergers and acquisitions on the financial performance of the U.S. forest products industry," Forest Policy and Economics, Elsevier, vol. 10(5), pages 286-294, April.
    2. Asimakopoulos, Ioannis & Athanasoglou, Panayiotis P., 2013. "Revisiting the merger and acquisition performance of European banks," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 237-249.
    3. Ongena, Steven & Penas, María Fabiana, 2009. "Bondholders' wealth effects in domestic and cross-border bank mergers," Journal of Financial Stability, Elsevier, vol. 5(3), pages 256-271, September.
    4. Hagendorff, Jens & Collins, Michael & Keasey, Kevin, 2008. "Investor protection and the value effects of bank merger announcements in Europe and the US," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1333-1348, July.
    5. Michael Murg & Matthias Pachler & Alexander C. M. Zeitlberger, 2016. "The impact of analyst recommendations on stock prices in Austria (2000–2014): evidence from a small and thinly traded market," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(3), pages 595-616, September.
    6. Peter Egger & Franz R. Hahn, 2006. "Endogenous Bank Mergers and Their Impact on Banking Performance," WIFO Working Papers 271, WIFO.
    7. Céline Crouzille & Laetitia Lepetit & Carlos Bautista, 2008. "How Did The Asian Stock Markets React To Bank Mergers After The 1997 Financial Crisis?," Pacific Economic Review, Wiley Blackwell, vol. 13(2), pages 171-182, May.
    8. Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 87-110, December.
    9. Maditinos D. & Theriou N. & Demetriades E., 2009. "The Effect of Mergers and Acquisitions on the Performance of Companies – The Greek Case of Ioniki-Laiki Bank and Pisteos Bank," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 111-130.
    10. 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.

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