Uncertainty or Misvaluation? New Evidence on Determinants of Merger Activity from the Banking Industry

Loveland, R., and K. Okoeguale, 2016. Uncertainty or Misvaluation? New Evidence on Determinants of Merger Activity from the Banking Industry. The Financial Review (Forthcoming)

59 Pages Posted: 15 Jan 2013 Last revised: 21 Jan 2016

See all articles by Robert Loveland

Robert Loveland

California State University, East Bay - Department of Accounting & Finance; University of Georgia - C. Herman and Mary Virginia Terry College of Business

Kevin Okoeguale

Saint Mary's College of California

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 2016

Abstract

We use data from the past 30 years of takeover activity in the U.S. banking industry to test competing neoclassical and misvaluation merger theories. Test results are consistent with evidence in the literature that merger activity is significantly related to both structural industry change and stock price misvaluation. Our primary contribution is to show that changes in misvaluation reflect a rise in industry-wide risk taking and that increases in risk originate from changes in industry structure due to deregulation. A measure of bank risk taking subsumes the power of stock price misvaluation to explain subsequent merger activity.

Keywords: Mergers and Acquisitions, Deregulation, Banking, Idiosyncratic Risk

JEL Classification: G21, G34, G38

Suggested Citation

Loveland, Robert and Okoeguale, Kevin, Uncertainty or Misvaluation? New Evidence on Determinants of Merger Activity from the Banking Industry (January 20, 2016). Loveland, R., and K. Okoeguale, 2016. Uncertainty or Misvaluation? New Evidence on Determinants of Merger Activity from the Banking Industry. The Financial Review (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2200594 or http://dx.doi.org/10.2139/ssrn.2200594

Robert Loveland (Contact Author)

California State University, East Bay - Department of Accounting & Finance ( email )

25800 Carlos Bee Boulevard
Hayward, CA 94542
United States

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
310 Herty Drive
Athens, GA 30602-6269
United States

Kevin Okoeguale

Saint Mary's College of California ( email )

P.O. Box 4240
Moraga, CA 94575-4240
United States

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