Incentives for Banking Megamergers: What Motives Might Regulators Infer from Event-Study Evidence?

55 Pages Posted: 21 Apr 2000

See all articles by Edward J. Kane

Edward J. Kane

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: January 25, 2000

Abstract

Methodologically, this paper frames the opportunity cost of any merger as the value of the alternative deals it precludes or defers. This challenges the standard event-study hypothesis that stock markets benchmark the value of a merger deal by the profits the partners would have earned in stand-alone activity. Substantively, the paper finds that megamergers in banking show two size-related exceptions to the prototypical result that acquirer stock value tends to be unaffected or to fall when a merger is announced. Giant U.S. banking organizations gain value from becoming more gigantic and gain additional value when they absorb an in-state competitor.

JEL Classification: G14, G21, G34

Suggested Citation

Kane, Edward J., Incentives for Banking Megamergers: What Motives Might Regulators Infer from Event-Study Evidence? (January 25, 2000). Available at SSRN: https://ssrn.com/abstract=221708 or http://dx.doi.org/10.2139/ssrn.221708

Edward J. Kane (Contact Author)

Boston College - Department of Finance ( email )

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National Bureau of Economic Research (NBER)

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