What Do Premiums Paid for Bank M&As Reflect? The Case of the European Union

Federal Reserve Bank of Atlanta Working Paper Series No. 2010-5

Finlawmetrics 2010 Conference Paper

37 Pages Posted: 16 Jan 2010

See all articles by Jens Hagendorff

Jens Hagendorff

University of Edinburgh - Business School

Ignacio Hernando

Banco de España

Maria Nieto

Banco de España

Larry D. Wall

Federal Reserve Bank of Atlanta - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2010

Abstract

We analyze the takeover premiums paid for a sample of European bank mergers between 1997 and 2007. We find that acquiring banks value profitable, high-growth and low risk targets. We also find that the strength of bank regulation and supervision as well as deposit insurance regimes in Europe have measurable effects on takeover pricing. Stricter bank regulatory regimes and stronger deposit insurance schemes lower the takeover premiums paid by acquiring banks. This result, presumably in anticipation of higher compliance costs, is mainly driven by domestic deals. Also, we find no conclusive evidence that bidders seek to extract benefits from regulators either by paying a premium for deals in less regulated regimes or by becoming ‘too big to fail’.

Keywords: banks, mergers, premiums, Europe

JEL Classification: G21, G34, G28

Suggested Citation

Hagendorff, Jens and Hernando, Ignacio and Nieto, Maria J. and Wall, Larry D., What Do Premiums Paid for Bank M&As Reflect? The Case of the European Union (January 15, 2010). Federal Reserve Bank of Atlanta Working Paper Series No. 2010-5; Finlawmetrics 2010 Conference Paper. Available at SSRN: https://ssrn.com/abstract=1537585 or http://dx.doi.org/10.2139/ssrn.1537585

Jens Hagendorff (Contact Author)

University of Edinburgh - Business School ( email )

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

Ignacio Hernando

Banco de España ( email )

Madrid 28014
Spain
+34 91 338 5186 (Phone)
+34 91 338 5678 (Fax)

Maria J. Nieto

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Larry D. Wall

Federal Reserve Bank of Atlanta - Research Department ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8937 (Phone)
404-498-8956 (Fax)

HOME PAGE: http://www.frbatlanta.org/econ_rd/bios/wall.htm

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