Performance and Asset Management Effects of Bank Acquisitions

35 Pages Posted: 10 Mar 1997 Last revised: 18 Nov 2007

See all articles by Ben R. Craig

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

João A. C. Santos

Federal Reserve Bank of New York

Date Written: May 1997

Abstract

This paper studies the effects of acquisitions on both acquired and acquiring banks. Through the use of overlap, von Mises, and other distance statistics, we confirm that, prior to acquisition, the acquirer generally performs better than the bank it acquired. Following the acquisition, the performance of the two banks starts to converge, mainly due to improvements in the acquired institution. During this process, the acquired is transformed in such a way that it becomes a replica of its acquirer, a result that confirms a strong policy integration among banks that are part of a bank holding company. These post--acquisition effects hint at an explanation for the abnormal returns usually observed at the time of the acquisition announcement, and provide some insight on the dominant motivations for the consolidation taking place in the banking industry.

JEL Classification: G21, G34

Suggested Citation

Craig, Ben R. and Santos, João A. C., Performance and Asset Management Effects of Bank Acquisitions (May 1997). FRB of Cleveland Working Paper No. 96-19, Available at SSRN: https://ssrn.com/abstract=8164 or http://dx.doi.org/10.2139/ssrn.8164

Ben R. Craig (Contact Author)

Federal Reserve Bank of Cleveland ( email )

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Deutsche Bundesbank

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João A. C. Santos

Federal Reserve Bank of New York ( email )

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