Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders

Houston, Joel F.; James, Christopher M.; Ryngaert, Michael D.

doi:10.1016/s0304-405x(01)00046-0

Cited by 454 publications

(315 citation statements)

References 13 publications

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“…Merger-related increases in loan rates and loan denials then can be expected at the target bank. Second, borrowers at target banks are hurt more than borrowers of acquiring banks when the merged bank adopts the strategic focus and the organizational structure of the acquiring bank (Peek and Rosengren, 1996;Houston et al, 2001). The reasoning is that the adoption of the "rules" of the acquiring bank makes the target bank's borrowers less likely to be in conformance with the new rules.…”

Section: Ii2 Borrower Heterogeneity: Modifications Of the Trade-off mentioning

confidence: 99%

SMES and Bank Lending Relationships: The Impact of Mergers

2004

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This paper studies the impact of bank mergers on firm-bank lending relationships using information from individual loan contracts in Belgium. We analyse the effects of bank mergers on the probability of borrowers maintaining their lending relationships and on their ability to continue tapping bank credit. The Belgian financial environment reflects a number of interesting features: high banking sector concentration; "in-market" mergers with large target banks; importance of large banks in providing external finance to SMEs; and low numbers of bank lending relationships maintained by SMEs. We find that bank mergers generate short-term and longer-term effects on borrowers' probability of losing a lending relationship. Mergers also have heterogeneous impacts across borrower types, including borrowers of acquiring and target banks, borrowers of differing size, and borrowers with single versus multiple relationships. Firms borrowing from acquiring banks are less likely to lose their lending relationship, while target bank borrowers are more likely to lose their relationship. Overlap borrowers -borrowing from two of the merging banks -are less likely to lose their relationship than firms borrowing from only one of the merging banks or firms borrowing from nonmerging banks.

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Section: Ii2 Borrower Heterogeneity: Modifications Of the Trade-off mentioning

confidence: 99%

SMES and Bank Lending Relationships: The Impact of Mergers

2004

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“…Similarly, Berger and Mester (2003) ascertain that while cost productivity worsened for US banks engaged in a merger between 1991 and 1997, their profit productivity improved substantially. A contrasting view is taken by Houston et al (2001), who maintain that, although bank merger effects improved over time, most of them did not result in significant revenue enhancements.…”

Section: A Short Review Of the Bank Merger Literaturementioning

confidence: 97%

The success of bank mergers revisited. An assessment based on a matching strategy

Behr¹,

Heid

2011

Journal of Empirical Finance

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The question of whether or not mergers and acquisitions have helped to enhance banks' efficiency and profitability has not yet been conclusively resolved in the literature. We argue that this is partly due to the severe methodological problems involved. In this study, we analyze the effect of German bank mergers in the period 1995-2000 on banks' profitability and cost efficiency. We suggest a new matching strategy to control for the selection effects arising from the fact that predominantly under-performing banks engage in mergers. Our results indicate a neutral effect of mergers on profitability and a positive effect on cost efficiency. Comparing our results with those obtained from a naive performance comparison of merging and non-merging banks indicates a severe negative selection bias with regard to the former.Keywords: Bank mergers, performance measurement, propensity score matching JEL classification: G21, G34 Non-technical summaryIn the past banks have often met challenges arising from higher cost pressure often by engaging in mergers and acquisitions in order to enhance their long-term profitability.Given that banks have tried to achieve economies of scale it is very surprising that a number of empirical studies have found that mergers and acquisitions do not improve the merging banks' performance. In this paper we critically reassess this seeming paradox.In our view, it is doubtful whether the success of M&As can by assessed by directly comparing merged with non-merging banks as some of these studies have done. In doing so, they neglect the fact that merging banks often represent an under-performing sample.If this is indeed the case, it is hardly surprising that the merged banks exhibit a relatively low profitability. In order to answer the question of whether M&As have helped to increase banks' profitability, one should therefore rather compare merging banks with non-merging banks that had been in a similar position. In this paper, we propose a matching strategy, similar to those deployed in clinical studies that evaluate the success of a particular treatment. Our matching approach for merging banks is carried out in two steps. As a first step, we use balance sheet and merger data to estimate the probability that a particular bank will engage in a merger in the following year. Different models are estimated for acquiring banks and targets. As a second step, we select for each acquiring bank and for each target a corresponding control bank from the set of non-merging banks, which minimizes the distance between the ex ante merging probabilities. These control banks now form a suitable benchmark for assessing the performance of the merger banks in our sample. Our results can be summarized as follows:1. The merging banks were indeed unsuccessful in improving their profitability, which is probably due to the restructuring costs these banks incurred.2. Nevertheless, these banks were able to improve their cost efficiency, which may help the banks to improve their long-term profitability.3. All in all,...

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“…The literature analyzing bank mergers uses a variety of variables to control for the difference in the value. Most of the control variables used in the analysis are drawn from previous studies of bank mergers such as Benston, Hunter, and Wall (1995);Hadlock, Houston, and Ryngaert (1999);and Houston, James, and Ryngaert (2001).…”

Section: Value Of the Target To Acquirermentioning

confidence: 99%

When Target CEOs Contract with Acquirers: Evidence from Bank Mergers and Acquisitions

2006

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Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders

Cited by 454 publications

References 13 publications

SMES and Bank Lending Relationships: The Impact of Mergers

SMES and Bank Lending Relationships: The Impact of Mergers

The success of bank mergers revisited. An assessment based on a matching strategy

When Target CEOs Contract with Acquirers: Evidence from Bank Mergers and Acquisitions

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