We study the M&A phenomenon in Europe during an extensive period spanning 1996-2010 using a sample of 118 domestic bank Ms&As. We compare the short-term impact of acquirer and target share prices around the announcement period and find significant abnormal returns for target banks for the 3-day event window. We argue that prior profitability can explain short-term price effects for both acquirers and targets since ROA affects positively cumulative abnormal returns when employing cross-sectional regression analysis. Accordingly, bidder banks, displaying prior low return on equity, experience losses in the post-event 10-day period, while target banks losses expand throughout our 21-day event window, underlying the important role of ROE on the formation of investment decisions and overall market perception. Investors favour both acquirers and sellers with high prior profitability.JEL: G11; G14, G15; G34

The consolidation process in the European banking system has been particularly strong in the last two decades. This paper investigates the long-term impact of M&As in the profitability and efficiency of banks. Using a sample of 118 within-border deals in Europe over the period 1996-2010, we highlight features of performance by the use of standard profitability and loan quality ratios. Our results show that in the post-merger period profitability slightly increases after the third year of operation even though initially M&A activity influences negatively our employed measures. Evidence from efficiency ratios is mixed. Some empirical evidence allows us to detect expansionary policies by banking institutions two to three years after the M&A onwards, but results have no definite trend. Over longer time horizons it is clear that banks' loan loss provisions against non-performing loans plummet in a finding related to information sharing in domestic deals. When testing the stock price behavior of merged institutions our empirical evidence does not allow us to infer that there exist opportunities to reap profits throughout the 2-year post-merger horizon.

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Based on a sample of 152 European banks Ms&As deals during the period 1996-2010, we probe into the short-term reaction of stock prices around the Ms&As announcement day by calculating abnormal returns for acquirers and targets. We also analyze the long-term value creation of combined entities by calculating buy-and-hold returns over two years subsequent to Ms&As. We find stock price erosions in the post-event 10-day period for the overall sample of acquirers. This finding is particularly evident in the case of low profitability bidder firms. We also detect a significantly positive stock price reaction of target bank shares for the 3-day event window around the Ms&As announcement day. This major finding remains unquestionable, throughout domestic and cross-border deals and irrespective of prior profitability of target banks