From Competition to Cartel: Bank Mergers in the U.K. 1885 to 1925

54 Pages Posted: 6 Feb 2010 Last revised: 13 Apr 2011

See all articles by Lyndon Moore

Lyndon Moore

University of Montreal - Department of Economics

Narly Dwarkasing

University of Bonn - Institute for Financial Economics and Statistics

Fabio Braggion

Tilburg University - Tilburg University School of Economics and Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: March 29, 2011

Abstract

We study the effects of bank mergers and acquisitions in the U.K. from 1885 to 1925. The lack of a regulatory authority and the confidential nature of merger negotiations allows us to precisely measure the wealth effects of M&As in a laissez-faire environment. We find positive wealth effects for bidders (0.7%-1%) and targets (6.7%-8%) over the announcement month. When takeovers took place in a competitive environment wealth creation appears to be related to efficiency gains. As competition decreased, gains to shareholders appear to be related to increased oligopoly power. In a less competitive environment, banks tended to reduce the amount of loans and increase their holdings of safe marketable securities. Banks with higher charter value displayed higher capital ratios.

Keywords: Mergers and Acquisitions, Wealth Effects, Corporate Governance

JEL Classification: G20, G34, N23

Suggested Citation

Moore, Lyndon and Dwarkasing, Narly and Braggion, Fabio, From Competition to Cartel: Bank Mergers in the U.K. 1885 to 1925 (March 29, 2011). Available at SSRN: https://ssrn.com/abstract=1548828 or http://dx.doi.org/10.2139/ssrn.1548828

Lyndon Moore

University of Montreal - Department of Economics ( email )

C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada

Narly Dwarkasing

University of Bonn - Institute for Financial Economics and Statistics ( email )

Adenauerallee 24-42
Bonn, 53113
Germany

Fabio Braggion (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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