Title

Partial Anticipation And The Gains To Bank Merger Targets

Keywords

Bank acquisitions; Merger gains; Partial anticipation; Probability of acquisition

Abstract

We design an empirical model to determine the prior probability of a bank becoming an acquisition target. We find that the probability of a bank being acquired is higher for banks that are larger, have a lower return on assets, a higher capital level, more non-performing loans, higher runup in price, a lower market-to-book multiple, a higher core deposit ratio, and a higher loan concentration. The probability is also higher since the passage of the Riegle-Neal Act of 1994. We also examine whether the full gains to target banks are conditioned on the probability of being acquired. We find that the gains to target banks in the one-year pre-announcement period are more pronounced for banks that exhibit high-logit probability characteristics. The gains are large and significant in the short-term announcement period, but not significantly related to the logit probabilities among banks. Our results suggest that the share price adjustment for the characteristics that make some banks more appealing targets appears to be completed in the pre-announcement period. Thus, studies that estimate the gains to targets using only the announcement period are underestimating the gains.

Publication Date

8-1-2004

Publication Title

Journal of Financial Services Research

Volume

26

Issue

1

Number of Pages

55-71

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1023/B:FINA.0000029657.34575.d2

Socpus ID

3042744009 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/3042744009

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