Value Creation in European Bank M&As

Abstract

This paper analyses the value creation of European bank M&As in 1998-2016. After 2008, the European banking market experienced structural changes, in the form of increased market concentration and decreased competition. We show that during this period, bidding banks’ shareholders gained approximately $34 million around the announcement day, a $56 million improvement compared to the pre-2009 era. Importantly, the higher abnormal returns are accompanied with significant improvements in long-term profitability. We find that both announcement abnormal returns and long-term profitability are higher when bidding banks expand in more concentrated and less competitive markets. Finally, we show that the main source of this improved performance is linked to market power exploitation, as captured by the merger-related changes in the net interest margins. Our empirical findings can contribute to the ongoing policy debate regarding the implications of market structure for the banks’ profitability and the depositors’ welfare.

Keywords: Bank mergers and acquisitions; market concentration; competition; event study; long-term merger performance

JEL Classification: G14; G21; G34