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Efficiency vs. agency motivations for bank takeovers: some empirical evidence

  • Alessio De Vincenzo

    ()

    (Bank of Italy)

  • Claudio Doria

    ()

    (Bank of Italy)

  • Carmelo Salleo

    ()

    (Bank of Italy)

Registered author(s):

    Bank takeovers result on average in little improvements in performance. This may be due to conflicting driving forces behind them; however these have seldom been studied. We study directly the motivations for bank acquisitions by analyzing the prices paid for them, under the assumption that bankers are willing to pay for what they want. We find that there is no evidence that bankers are ready to pay for possible economies of scale and scope; on the other hand buyers expect to transfer their superior managerial skills to targets. Market power seems to hold little value while entry (or diversification) commands a premium. Agency issues at the buyer are also an important motivation for takeovers: other things being equal acquirers with more free capital are willing to pay more.

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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2006/2006-0587/tema_587.pdf
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    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 587.

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    Date of creation: May 2006
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    Handle: RePEc:bdi:wptemi:td_587_06
    Contact details of provider: Postal: Via Nazionale, 91 - 00184 Roma
    Web page: http://www.bancaditalia.it

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    10. Cornett, Marcia Millon & Hovakimian, Gayane & Palia, Darius & Tehranian, Hassan, 2003. "Erratum to "The impact of the manager-shareholder conflict on acquiring bank returns" [Journal of Banking and Finance 27(1), pp. 103-131]," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 775-775, April.
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    16. Palia, Darius, 1993. "The Managerial, Regulatory, and Financial Determinants of Bank Merger Premiums," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 91-102, March.
    17. Cheng, David C & Gup, Benton E & Wall, Larry D, 1989. "Financial Determinants of Bank Takeovers: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 524-36, November.
    18. Houston, Joel F. & James, Christopher M. & Ryngaert, Michael D., 2001. "Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 285-331, May.
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