The Cost of Using Bank Mergers as Defensive Mechanisms Against Takeover Threats

Posted: 3 Oct 2002

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Abstract

This study shows that targeted banks that become acquirers generally overpay. The evidence suggests that bank mergers are effective devices against takeovers. Targeted banks that engage in acquisitions are less likely to be taken over than targeted banks that do not engage in acquisitions. However, such a strategy is costly. I find that market reactions to bank mergers involving recently targeted acquirers are significantly more negative than market reactions to mergers involving non-targeted acquirers. This is consistent with the market perceiving acquisitions by targeted banks as being generally defensive in nature.

Keywords: Bank, takeover threat, merger, premium, defensive merger

JEL Classification: G2, G3

Suggested Citation

Louis, Henock, The Cost of Using Bank Mergers as Defensive Mechanisms Against Takeover Threats. Journal of Business, Vol. 77, pp. 295-310, 2004. Available at SSRN: https://ssrn.com/abstract=316959

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

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