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DO BANKING ACQUISITIONS CREATE VALUE IN AN
ERA OF DEREGULATION AND INCREASING RISKS?
RECENT FINDINGS IN THE US


Apostolos G. Christopoulos
University of Athens, Greece

 

KonstantinosVergos2,
University of Portsmouth, United Kingdom



ABSTRACT


This study investigates whether Mergers and Acquisitions (M&As) continue to be an effective means of capital allocation in periods of increasing risks and decreasing banking regulation. To examine this hypothesis, abnormal returns are investigated for the largest bank-to-bank mergers in the US for the period 2005 to 2011. We find that M&As are associated with high market returns for Target companies, negative returns for Acquirers and positive Joint market value returns. By computing standardised Cumulative Abnormal Returns (SCARs), we find that the gains for Target banks are statistically significant. In particular we find that on a 3-day event window, Target Banks appreciated approximately by 9.7% while bidders lose approximately 0.45% of their value for the same period. Average appreciation of the market value of target companies for an 11-day event window is estimated at 22.94%. Our results are in line with the findings of previous studies based on US data. Nevertheless we found abnormal returns for Target Banks that are significantly higher than in other studies. Abnormal returns before the announcement day are significant, whilst the abnormal returns after the announcement day are not significant. Our findings provide support for the hypothesis that deregulation has been associated with benefits for the joint bank value, albeit not statistical significant. Our findings are significant for fund managers and regulators. If mergers are associated with increasing market value then they decrease the risk of the institutions involved. Our findings are also useful to fund managers because they provide an indication that there are no post-announcement gains for involved banks, so fund strategies could reduce post-announcement investments in banks that are involved in M&As. 

 

 

Keywords: Bank mergers, mergers and acquisitions, abnormal returns
JEL classification: G14, G21, G34