Bank Acquisition Announcements And Intra-Industry Effects

Abstract

In this paper we attempt to assess whether gains in wealth associated with bank consolidation are the result of economic efficiencies by analyzing effects of bank merger announcements on the values of bidders, targets, and rival banks in the target’s geographical area.  We find target banks earn positive returns, while bidding banks sustain negative returns at acquisition announcement. These findings are consistent with previously reported results in the bank consolidation literature.  We also find rival banks earn positive returns that are enhanced when the target bank is in distress. We suggest the results are consistent with the view that investors interpret acquisition announcements as positive, geographically specific signals that may, in turn, reflect event-specific or bank-specific characteristics rather than expectations of increased efficiencies.