Efficiency vs. Agency Motivations for Bank Takeovers: Some Empirical Evidence

47 Pages Posted: 10 Jul 2006

Date Written: May 2006

Abstract

Bank takeovers result on average in little improvements in performance. This may be due to conflicting driving forces behind them; however these have seldom been studied. We study directly the motivations for bank acquisitions by analyzing the prices paid for them, under the assumption that bankers are willing to pay for what they want. We find that there is no evidence that bankers are ready to pay for possible economies of scale and scope; on the other hand buyers expect to transfer their superior managerial skills to targets. Market power seems to hold little value while entry (or diversification) commands a premium. Agency issues at the buyer are also an important motivation for takeovers: other things being equal acquirers with more free capital are willing to pay more.

Keywords: banking, M&As, pricing, corporate governance, market power

JEL Classification: G21, G34, L21

Suggested Citation

Salleo, Carmelo and Doria, Claudio and De Vincenzo, Alessio, Efficiency vs. Agency Motivations for Bank Takeovers: Some Empirical Evidence (May 2006). Bank of Italy Temi di Discussione (Working Paper) No. 587. Available at SSRN: https://ssrn.com/abstract=914488 or http://dx.doi.org/10.2139/ssrn.914488

Carmelo Salleo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Claudio Doria

Bank of Italy ( email )

Via Pretoria 175
85100 Potenza
Italy

Alessio De Vincenzo

Bank of Italy ( email )

Via Nazionale, 187
00184 Roma
Italy
+39-06-47924446 (Phone)

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