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New evidence on shareholder wealth effects in bank mergers during 1980-2000

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Abstract

This paper employs two unique bank event study methodologies to calculate abnormal returns for bidder, target and combined firms. The first methodology is a modified market model that controls for shocks common to the banking industry. The second is an EGARCH (1, 1) model that adjusts for the violated regression assumptions of the traditional market model event study. The results of both methodologies reveal that target shareholders enjoy significantly positive abnormal returns, whereas the bidder shareholders experience significantly negative abnormal returns. Overall, announcements of bank mergers generate positive wealth effects for the combined shareholders. However, the evidence presented in this paper underscores the importance of the choice of models describing stock returns in examining the impact of bank mergers.

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Notes

  1. http://www.fdic.gov

  2. The Lexis-Nexis database contains full-text articles from several periodicals.

  3. The major currencies index is a weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that circulate widely outside the country of issue. The weights are derived from those in the broad index.

  4. Same as that used by Wetmore and Brick (1994).

  5. Same as that used by Wetmore and Brick (1994).

  6. Flannery and James (1984).

  7. All the information are available online from http://www.federalreserve.gov.

  8. For the problems arising from testing GARCH models that imposes restrictions on ω, δ, and ψ see Hentschel (1995).

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Authors and Affiliations

  1. Central Bank of Jordan, Amman, Jordan

    Adel A. Al-Sharkas

  2. Department of Economics and Finance, University of New Orleans, New Orleans, LA, 70148, USA

    M. Kabir Hassan

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  1. Adel A. Al-Sharkas
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  2. M. Kabir Hassan
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Correspondence to M. Kabir Hassan.

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Al-Sharkas, A.A., Hassan, M.K. New evidence on shareholder wealth effects in bank mergers during 1980-2000. J Econ Finan 34, 326–348 (2010). https://doi.org/10.1007/s12197-008-9071-1

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