On the Wealth Effects of Merging Banks’ Rivals Empirical Evidence for US Bank Mergers

24 Pages Posted: 27 Aug 2009 Last revised: 27 Jul 2010

See all articles by Gregor N. F. Weiss

Gregor N. F. Weiss

University of Leipzig - Faculty of Economics and Management Science

Sascha Neumann

Ruhr Universität Bochum

Date Written: July 10, 2010

Abstract

Abstract: Using a unique sample of 425 bank mergers in the US announced between 2000 and 2008 this paper provides clear evidence supporting the collusion and productive efficiency hypotheses. By analyzing 425 bank mergers and a total of 1112 possible rivals, our analysis shows that the majority of transactions can be explained by at least one abnormal return pattern attributed to either the collusion, productive efficiency, acquisition probability or pre-emptive merger hypothesis. In contrast to previous empirical literature starting with Eckbo (1983), however, we find evidence that wealth effects of the rivals of merging banks can be explained best by the collusion and productive efficiency hypotheses. Methodically, we extend previous approaches considerably by proposing a rivalry index incorporating balance sheet data as well as firm characteristics in order to identify the merging banks’ rivals. Empirical results of our main analysis also hold when performing several robustness checks. Using random scaling factors, we find that our main results are not sensitive to a change in the scaling factors that determine our rivalry index. Moreover, our main results are robust to a change of the method for computing abnormal returns.

Keywords: M&A, Banks, Event Study, Rival Returns

JEL Classification: G34, G21, G14, L13

Suggested Citation

Weiss, Gregor N. F. and Neumann, Sascha, On the Wealth Effects of Merging Banks’ Rivals Empirical Evidence for US Bank Mergers (July 10, 2010). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1460954 or http://dx.doi.org/10.2139/ssrn.1460954

Gregor N. F. Weiss

University of Leipzig - Faculty of Economics and Management Science ( email )

Grimmaische Str. 12
Leipzig, 04109
Germany
+49 341 97 33821 (Phone)
+49 341 97 33829 (Fax)

HOME PAGE: http://www.wifa.uni-leipzig.de/nfdl

Sascha Neumann (Contact Author)

Ruhr Universität Bochum ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

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