The effects of cross-border bank mergers on bank risk and value

Abstract

This paper examines the effects of cross-border bank mergers on the risk and (abnormal) returns of acquiring banks. We find that overall, the acquirers' risk neither increases nor decreases. In particular, on average neither their total risk nor their systematic risk falls relative to banks in their home banking market. The abnormal returns to acquirers are negative and significant, but are somewhat higher when risk increases relative to banks in the acquirer's home country.Revised,

Cross-Border Bank Acquisitions: Is there a Performance Effect?

“…Three sets of variables are included as regressors: event dummies for the year of the deal (Yr0), 1 and 2 years after (Yr12), and three or more years after (Yr3+); country pair characteristics reflecting similarities between the host and home countries; and host country market and macroeconomic characteristics. diversification of the bank and not the profitability obtained in any particular market (Amihud et al 2002). In contrast, if we assume that there are agency problems between managers and shareholders, cross-border acquisitions could be motivated by non-profit maximizing decisions (Cornett et al 2003).…”

“…The lack of comparable stock price information across countries-outside of Europe-has limited the amount of studies using the event methodology to analyze performance effects after cross-border M&As. 7 In one of the few studies that uses the link between cross-border deal information and stock prices, Amihud et al (2002) find that there is no reduction in risk for those banks that diversify geographically by acquiring financial institutions abroad. Moreover, the cumulative abnormal returns for acquirers in these transactions are negative and significant.…”

Impact on Target Firm Risk-Return Characteristics of Domestic and Cross-Border Mergers and Acquisitions in Emerging Markets

“…It should be noted that our paper differs considerably from the existing literature, which focuses mainly on acquiring firms' risk changes in mergers and acquisitions (e.g., Amihud et al 2002;Bharath and Wu 2005;Kiymaz and Mukherjee 2001). There are 80 Emerging Markets Finance & Trade only a few studies on cross-border M&As in emerging countries.…”

M&As in the airline industry: motives and systematic risk

“…Their result suggested neither significant market power gains nor a change in systematic risk as a result of the merger. Amihud et al (2002) estimated the effects of cross-border merges in the banking industry on two different types of risk, total and systematic. The total risk was calculated as the ratio of the variance of the acquirer's daily stock returns to the variance of an index return.…”