From Competition to Cartel: Bank Mergers in the U.K. 1885 to 1925
54 Pages Posted: 6 Feb 2010 Last revised: 13 Apr 2011
Date Written: March 29, 2011
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: Suggested Citation