Do Bank Acquisitions Increase Shareholders' Wealth? A Comparison between Market-Based and Accounting-Based Performance Indicators for Some Italian Banks

Abstract

We compare accounting-based with stock price-based performance measures for a small sample of Italian listed banks acquired over the period 1992-1997. On average the performance change after the acquisition is positive, according to both type of indicators. However, there is very little correlation between the size of the stock market reaction to the acquisition announcement and the size of the performance improvement measured according to post-acquisition accounting data. We find a somewhat stronger positive correlation between control premia paid in the acquisitions and the subsequent performance change of the acquired banks. This evidence suggests that control premia reflect the efficiency gains expected by the bidders, rather than private benefits, allowing minority shareholders of target banks to cash ex ante part of the efficiency gains achieved ex post by the new controlling shareholder. We also find that control premia tend to be larger whenever the acquiring bank is relatively less efficient than the acquired bank.

Keywords: bank, mergers, efficiency, CAR

JEL Classification: G21, G34, G14