Value Creation in European Bank M&As

Abstract

In this paper, we provide novel evidence of shareholder value creation in European bank M&As. We show that since 2009, bidders realize approximately 3% higher abnormal returns compared to the previous years; the returns being accompanied by significant improvements in long-term profitability. The main source of this improved performance is linked to market power exploitation, as captured by higher net interest margins. These findings are linked to the structural changes, in the form of increased market concentration and decreased competition, that have occurred in the European banking markets since 2009. We show and argue that these results are unique to Europe due to the region’s exposure to twin-crises, the differences in policy response, and the substantial increase in concentration in the post-2008 period compared to other markets, such as the U.S. and the Central and Eastern Europe. The results preserve after a series of robustness and endogeneity checks.

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