Focusing Versus Diversifying Bank Mergers: Analysis of Market Reaction and Long-Term Performance

37 Pages Posted: 30 Jan 2001

See all articles by Gayle L. DeLong

Gayle L. DeLong

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: January 2001

Abstract

This paper explores the paradox of bank mergers: on average, bank mergers do not create value yet they continue to occur. Using cross-sectional analysis to examine 56 bank mergers between 1991 and 1995, I test several facets of focus and diversification. The study finds that upon announcement the market rewards the mergers of partners that focus their activities and geography. Long-term efficiency, however, is enhanced when the merger involves a relatively inefficient acquirer and payment is not made solely with cash. Long-term stock performance is further enhanced when the surviving firm does not engage in cross-subsidization. The study suggests market participants correctly realize that focusing mergers create value, but investors may need to rethink the facets of focus they value.

Keywords: Banks, mergers, cross-sectional analysis

JEL Classification: G21, G34, C21

Suggested Citation

DeLong, Gayle L., Focusing Versus Diversifying Bank Mergers: Analysis of Market Reaction and Long-Term Performance (January 2001). Available at SSRN: https://ssrn.com/abstract=256164 or http://dx.doi.org/10.2139/ssrn.256164

Gayle L. DeLong (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

One Bernard Baruch Way
Box B 10-225
New York, NY 10010
United States
646-312-3493 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://faculty.baruch.cuny.edu/gdelong

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,181
Abstract Views
3,669
rank
19,878
PlumX Metrics