M&A Performance in the European Financial Industry

IESE Business School Working Paper No. 588

29 Pages Posted: 28 Feb 2006

See all articles by José Manuel Campa

José Manuel Campa

University of Navarra - Madrid Campus - IESE Business School; National Bureau of Economic Research (NBER)

Ignacio Hernando

Banco de España

Date Written: April 2005

Abstract

This paper looks at the performance record of M&As that took place in the European Union financial industry in the period 1998-2002. First, the paper reports evidence on shareholder returns from mergers. Merger announcements brought positive excess returns to the shareholders of the target company around the date of the announcement, with a slight positive excess return in the 3-month period prior to announcement. Returns to shareholders of the acquiring firms were essentially zero around announcement. One year after the announcement, excess returns were not significantly different from zero for either targets or acquirers. The paper also provides evidence on changes in operating performance for the subsample of mergers involving banks. M&As usually involved targets with lower-than-average operating performance for their sector. The transactions resulted in significant improvements in the target banks' performance, beginning on average two years after the transaction was completed. Return on equity of the target companies increased by an average of 7%, and the same firms also experienced efficiency improvements.

Keywords: Mergers and acquisitions, Europe, financial industry

Suggested Citation

Campa, José Manuel and Hernando, Ignacio, M&A Performance in the European Financial Industry (April 2005). IESE Business School Working Paper No. 588. Available at SSRN: https://ssrn.com/abstract=884372 or http://dx.doi.org/10.2139/ssrn.884372

José Manuel Campa (Contact Author)

University of Navarra - Madrid Campus - IESE Business School ( email )

Camino del Cerro del Aguila 3
Madrid, 28023
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ignacio Hernando

Banco de España ( email )

Madrid 28014
Spain
+34 91 338 5186 (Phone)
+34 91 338 5678 (Fax)

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