The Cost of Using Bank Mergers as Defensive Mechanisms Against Takeover Threats
Posted: 3 Oct 2002
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: Suggested Citation