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Acquisition targets and motives in the banking industry

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  • Timothy H. Hannan
  • Steven J. Pilloff

Abstract

This paper uses a large sample of individual banking organizations, observed from 1996 to 2003, to investigate the characteristics that made them more likely to be acquired. We use a definition of acquisition that we consider preferable to that used in much of the previous literature, and we employ a competing-risk hazard model that reveals important differences that depend on the type of acquirer. Since interstate acquisitions became more numerous during this period, we also investigate differences in the determinants of acquisition between in-state and out-of-state acquirers. The hypothesis that acquisitions serve to transfer resources from less efficient to more efficient uses receives substantial support from our results, as do a number of other relevant hypotheses.

Suggested Citation

  • Timothy H. Hannan & Steven J. Pilloff, 2006. "Acquisition targets and motives in the banking industry," Finance and Economics Discussion Series 2006-40, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2006-40
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    References listed on IDEAS

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    1. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.
    2. Aigbe Akhigbe & Jeff Madura & Ann Whyte, 2004. "Partial Anticipation and the Gains to Bank Merger Targets," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(1), pages 55-71, August.
    3. Rotemberg, Julio J & Saloner, Garth, 1987. "The Relative Rigidity of Monopoly Pricing," American Economic Review, American Economic Association, vol. 77(5), pages 917-926, December.
    4. Dean F. Amel & Stephen A. Rhoades, 1989. "Empirical Evidence on the Motives for Bank Mergers," Eastern Economic Journal, Eastern Economic Association, vol. 15(1), pages 17-27, Jan-Mar.
    5. David C. Wheelock & Paul W. Wilson, 2000. "Why do Banks Disappear? The Determinants of U.S. Bank Failures and Acquisitions," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 127-138, February.
    6. Richard J. Rosen & Scott B. Smart & Chad J. Zutter, 2005. "Why do firms go public? evidence from the banking industry," Working Paper Series WP-05-17, Federal Reserve Bank of Chicago.
    7. Robert R. Moore, 1997. "Bank acquisition determinants: implications for small business credit," Financial Industry Studies Working Paper 97-2, Federal Reserve Bank of Dallas.
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    Cited by:

    1. Andrés Garcia & José Gomez, 2009. "Determinantes de las fusiones y adquisiciones en el sistema financiero colombiano. 1990-2007," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, May.
    2. Ron Boschma & Matté Hartog, 2014. "Merger and Acquisition Activity as Driver of Spatial Clustering: The Spatial Evolution of the Dutch Banking Industry, 1850–1993," Economic Geography, Clark University, vol. 90(3), pages 247-266, July.
    3. Stefano Caiazza & Alberto Franco Pozzolo & Giovanni Trovato, 2016. "Bank efficiency measures, M&A decision and heterogeneity," Journal of Productivity Analysis, Springer, vol. 46(1), pages 25-41, August.
    4. repec:eee:finana:v:54:y:2017:i:c:p:144-158 is not listed on IDEAS
    5. Hernando, Ignacio & Nieto, Mara J. & Wall, Larry D., 2009. "Determinants of domestic and cross-border bank acquisitions in the European Union," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1022-1032, June.
    6. Julapa Jagtiani, 2008. "Understanding the effects of the merger boom on community banks," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 29-48.
    7. Jamal Al-Khasawneh, 2013. "Pairwise X-efficiency combinations of merging banks: analysis of the fifth merger wave," Review of Quantitative Finance and Accounting, Springer, vol. 41(1), pages 1-28, July.
    8. Beccalli, Elena & Frantz, Pascal, 2016. "Why are some banks recapitalized and others taken over?," LSE Research Online Documents on Economics 67305, London School of Economics and Political Science, LSE Library.
    9. 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.
    10. Jens Hagendorff & María J. Nieto & Larry D. Wall, 2012. "The safety and soundness effects of bank M&As in the EU: does prudential regulation have any impact?," Working Papers 1236, Banco de España;Working Papers Homepage.
    11. García-Suaza, Andrés Felipe & Gómez-González, José E., 2010. "The competing risks of acquiring and being acquired: Evidence from Colombia's financial sector," Economic Systems, Elsevier, vol. 34(4), pages 437-449, December.
    12. Hankir, Yassin & Rauch, Christian & Umber, Marc P., 2011. "Bank M&A: A market power story?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2341-2354, September.
    13. Beccalli, Elena & Frantz, Pascal, 2016. "Why are some banks recapitalized and others taken over?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 45(C), pages 79-95.
    14. John Goddard & Donal McKillop & John Wilson, 2009. "Which Credit Unions are Acquired?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 231-252, December.
    15. Abdourahmane Diaw, 2011. "The effect of mergers and acquisitions on shareholder wealth: the case of European banks
      [L'effet des fusions et acquisitions sur la richesse des actionnaires: le cas des banques européennes]
      ," Post-Print hal-01184673, HAL.
    16. Vincent Bouvatier & Michael Brei & Xi Yang, 2014. "Bank Failures and the Source of Strength Doctrine," EconomiX Working Papers 2014-15, University of Paris Nanterre, EconomiX.
    17. John Goddard & Donal Mckillop & John O. S. Wilson, 2014. "U.S. Credit Unions: Survival, Consolidation, And Growth," Economic Inquiry, Western Economic Association International, vol. 52(1), pages 304-319, January.
    18. 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.
    19. Elena Beccalli & Pascal Frantz, 2013. "The Determinants of Mergers and Acquisitions in Banking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(3), pages 265-291, June.
    20. Dunn, Jessica Kay & Intintoli, Vincent J. & McNutt, Jamie John, 2015. "An examination of non-government-assisted US commercial bank mergers during the financial crisis," Journal of Economics and Business, Elsevier, vol. 77(C), pages 16-41.

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    Keywords

    Bank mergers ; Banks and banking;

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