What Twenty Years of Regulations Have to Say About M&As of U.S. Banks?

Abstract

We extend the U.S. bank M&As literature by examining announcement returns for acquisitions of both listed and unlisted targets by U.S. banking firms for a long period of time from the eighties till to date. Over these decades there have been implemented several regulation changes, notably the Dodd-Frank Act that would be of interest to examine whether they have any impact, and if indeed they have to which direction, on value creation in M&As in the U.S. banking industry. Contrary to the conventional wisdom that bidding banks lose upon the announcement of a merger, we find positive abnormal returns for these firms that choose to acquire privately-held targets. Further, returns for acquirers in private offers do not depend on the method of payment, legislative changes, size, or geographical scope. However, we find that the use of a financial advisor on the part of the bidder can better explain the variation in abnormal returns for such offers. Our results are not influenced by any unobserved bidder-specific component or sample selection issues.JEL Classification: G14, G21, G34.

Does boardroom gender diversity affect shareholder wealth? Evidence from bank mergers and acquisitions

“…Small acquirers gain more from mergers compared to large ones, irrespectively of the form of financing and the listing status of targets. Hankir et al (2011) find similar results for bank mergers, while Leledakis et al (2017), Doukas and Zhang (2013) and Gupta and Misra (2007) report an insignificant relationship between the abnormal returns of acquiring banks and their size. Kane (2000) shows that large banks—being “too big to discipline adequately”—gain value when acquiring large targets, while Brewer and Jagtiani (2013) find insignificant returns for acquirers that already have or reach the “too big to fail” status after the merger.…”

“…However, the uncertain valuation of target firms complicates the assessment of their fair value and thus the premium offered by acquirers. Leledakis et al (2017), Barbopoulos and Wilson (2016) and Gupta and Misra (2010) confirm the presence of a “listing effect” in bank mergers, since they find that acquirers of unlisted targets gain more than acquirers of listed targets. Hence, to control for the listing status of targets, we use a dummy variable that is assigned a value of 1 if the target is listed and 0 otherwise.…”

“…Gupta and Misra (2007) and DeLong (2001) find a significant negative effect of interstate transactions on acquiring bank excess returns, while Doukas and Zhang (2013) come to the opposite conclusion. Leledakis et al (2017) do not find any empirical support for the notion that interstate or intrastate deals affect bidder returns. Therefore, to control for potential effects of geographic focus, we include in Equation (5) a dummy variable that is assigned a value of 1 for intrastate acquisitions and 0 for interstate ones.…”

“…Extant literature shows that the relative deal size has a significant impact on acquirer returns (Fuller et al, 2002; Moeller et al, 2004). For banks, Leledakis et al (2017) find a significant positive effect on private deals, while the effect turns to negative for public acquisitions. Doukas and Zhang (2013) report similar results for acquisitions with listed targets.…”

“…DeLong (2001), Brewer and Jagtiani (2013) and Doukas and Zhang (2013) suggest that the payment method does not have a significant impact on wealth gains for acquirers. Leledakis et al (2017) find that bidders realize insignificant results in cash offers, while they experience significant negative returns for mergers financed with any type of stock. Gupta and Misra (2007) report a significant negative effect of stock payment on value‐reducing deals.…”