Bank M&A: A Market Power Story?
Frankfurt School of Finance & Management - FIPEMA
University of Oxford - Said Business School
Marc P. Umber
Frankfurt School of Finance & Management
July 9, 2009
Journal of Banking and Finance, Vol. 35, No. 9, 2011
This paper analyzes capital market reactions to international bank M&A. We investigate the combined stock return patterns of targets, bidders, and their peers upon takeover announcement, and closing or withdrawal. We distinguish five common M&A hypotheses and relate characteristic and mutually exclusive abnormal stock return patterns to each hypothesis. The findings show that there are more investors who believe in gains through the exploitation of market power by the post-merger entity than investors who believe in any of the other motives tested in the paper. In a multinomial logistic model we show that patterns related to market power significantly concur with large relative target size, intra-industry mergers, and increasing market concentration, suggesting a substantial lessening of competition through M&A.
Keywords: M&A, Banks, Event Study, Peer Returns, Market Power
JEL Classification: G34, G21, G14, L13
Date posted: September 27, 2009 ; Last revised: May 29, 2012