Do Acquisitions Create Value? Evidence from the US and European Bank Acquisitions During Financial Crisis

Abstract:     
In this research, we investigate the valuation effect on acquiring banks during different window of events. The research is conducted on the US and the European banks mergers and acquisition during the period of 2004 through 2010 with special focus on bank mergers during the financial crisis of this decade. During this crisis period when many big banks are also on the verge of bankruptcy, many mergers and acquisitions take place in the United States in Europe. Using traditional event study methodology, we investigate the wealth effect on acquiring banks to understand the market reaction in bank acquisitions announcements. We observe those acquisition announcements, on average; create a 0.3% and 0.8% gain in the United States and European countries, respectively to the acquiring bank. When we focus on banks with different size and location, we, however, find that, on average, American acquiring banks lose 18% who employ 10,000-100,000 and European banks lose 6% with same employment size. Furthermore, American acquiring banks lose 17% and 12% that are headquartered in the Western and Midwestern states respectively. Our results offer further evidence to the literature that, shareholders of acquiring banks face negative wealth effect even when they acquire other banks during crisis period.

Number of Pages in PDF File: 28

Keywords: Acquisitions, mergers, banks, event study, bankruptcy, financial crisis

JEL Classification: G21, G34

working papers series