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The Value Effects of Bank Mergers and Acquisitions

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  • Steven J. Pilloff
  • Anthony M. Santomero

Abstract

The banking industry has experienced an unprecedented level of consolidation on a belief that gains can accrue through expense reduction, increased market power, reduced earnings volatility, and scale and scope economies. A review of the literature suggests that the value gains that are alleged have not been verified. The paper then seeks to address alternative explanations and reconcile the data with continued merger activity.

Suggested Citation

  • Steven J. Pilloff & Anthony M. Santomero, 1996. "The Value Effects of Bank Mergers and Acquisitions," Center for Financial Institutions Working Papers 97-07, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:97-07
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    File URL: http://fic.wharton.upenn.edu/fic/papers/97/9707.pdf
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    References listed on IDEAS

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    1. Madura, Jeff & Wiant, Kenneth J., 1994. "Long-term valuation effects of bank acquisitions," Journal of Banking & Finance, Elsevier, vol. 18(6), pages 1135-1154, December.
    2. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1996. "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Center for Financial Institutions Working Papers 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Berger, Allen N. & Humphrey, David B., 1991. "The dominance of inefficiencies over scale and product mix economies in banking," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 117-148, August.
    4. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 501-520, December.
    5. Frei, F.X. & Harker, P.T., 1996. "Measuring the Efficiency of Service Delivery Processes: With Application to Retail Banking," Papers 96-04, Rochester, Business - Operations Management.
    6. Aruna Srinivasan & Larry D. Wall, 1992. "Cost savings associated with bank mergers," FRB Atlanta Working Paper 92-2, Federal Reserve Bank of Atlanta.
    7. Allen N. Berger & David B. Humphrey, 1992. "Megamergers in banking and the use of cost efficiency as an antitrust defense," Finance and Economics Discussion Series 203, Board of Governors of the Federal Reserve System (U.S.).
    8. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    9. Aruna Srinivasan, 1992. "Are there cost savings from bank mergers?," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 17-28.
    10. Frances X. Frei & Patrick T. Harker & Larry W. Hunter, 1995. "Performance in Consumer Financial Services Organizations: Framework and Results from the Pilot Study," Center for Financial Institutions Working Papers 95-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
    11. David B. Humphrey, 1990. "Why do estimates of bank scale economies differ?," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 38-50.
    12. Jeffrey A. Clark, 1988. "Economies of scale and scope at depository financial institutions: a review of the literature," Economic Review, Federal Reserve Bank of Kansas City, issue Sep, pages 16-33.
    13. Cornett, Marcia Millon & Tehranian, Hassan, 1992. "Changes in corporate performance associated with bank acquisitions," Journal of Financial Economics, Elsevier, vol. 31(2), pages 211-234, April.
    14. Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April.
    15. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    16. 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.).
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    Cited by:

    1. Lamberte, Mario B. & Manlagnit, Ma. Chelo V., 2004. "Evaluating the Impacts of Competition Policy Reforms on the Efficiency of Philippine Commercial Banks," Discussion Papers DP 2004-46, Philippine Institute for Development Studies.
    2. Hughes, Joseph P. & Lang, William W. & Mester, Loretta J. & Moon, Choon-Geol, 1999. "The dollars and sense of bank consolidation," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 291-324, February.
    3. Chong, Beng-Soon & Liu, Ming-Hua & Tan, Kok-Hui, 2006. "The wealth effect of forced bank mergers and cronyism," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3215-3233, November.

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