Investor Protection and the Value Effects of Bank Merger Announcements in Europe and the US

Posted: 17 Feb 2008 Last revised: 29 Jun 2009

See all articles by Jens Hagendorff

Jens Hagendorff

University of Edinburgh - Business School

Michael Collins

University of Leeds

Kevin Keasey

University of Leeds - Division of Accounting and Finance

Abstract

Investor protection regimes have been shown to partly explain why the same type of corporate event may attract different investor reactions across countries. We compare the value effects of large bank merger announcements in Europe and the US and find an inverse relationship between the level of investor protection prevalent in the target country and abnormal returns that bidders realize during the announcement period. Accordingly, bidding banks realize higher returns when targeting low protection economies (most European economies) than bidders targeting institutions which operate under a high investor protection regime (the US). We argue that bidding bank shareholders need to be compensated for an increased risk of expropriation by insiders which they face in a low protection environment where takeover markets are illiquid and there are high private benefits of control.

Keywords: Banks, Mergers, Investor protection, Corporate governance

JEL Classification: G21, G34, G14, G28

Suggested Citation

Hagendorff, Jens and Collins, Michael and Keasey, Kevin, Investor Protection and the Value Effects of Bank Merger Announcements in Europe and the US. Journal of Banking and Finance, Vol. 32, No. 7, pp. 1333-1348, 2008, Available at SSRN: https://ssrn.com/abstract=1093728

Jens Hagendorff (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

Michael Collins

University of Leeds ( email )

Leeds, LS2 9JT
United Kingdom

Kevin Keasey

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)

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