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Performance of bank mergers and acquisitions: a review of the recent empirical evidence

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Abstract

This review provides a comprehensive analysis of the literature on bank mergers and acquisitions with an emphasis on the last decade. The study identifies and analyzes more than 135 publications focusing on this subject. The publications are grouped along their regional focus and the three main empirical methodologies utilized in the literature. The results are documented in detail and their evolution over time is discussed. The key factors influencing the performance of bank mergers and acquisitions, as identified in the relevant literature, are grouped into three categories and evaluated according to their contribution to the success of a merger. This paper concludes with a brief discussion of the influence of managers on the performance of mergers and acquisitions and evidence on regulatory arbitrage through bank mergers and acquisitions.

Zusammenfassung

Das Ziel des vorliegenden Beitrags ist es, einen Überblick über den aktuellen Stand der Forschung im Bereich der Bankfusionen und –übernahmen, mit besonderem Fokus auf die letzten zehn Jahren, zu geben. Analysiert werden mehr als 135 Publikationen die sich mit diesem Themenkomplex auseinandersetzen, gruppiert nach regionalem Fokus und der angewandten Methodik. Die Resultate der einzelnen Studien werden aufgeführt und ihre Entwicklung über die Zeit dokumentiert. Dabei können die wichtigsten Einflussfaktoren für den Erfolg von Bankfusionen und –übernahmen identifiziert, in drei Gruppen kategorisiert und anhand ihres Beitrags für den Erfolg einer Transaktion bewertet werden. Zum Abschluss wird mit einer kurzen Diskussion über den Einfluss des Top Managements auf den Erfolg von Bankzusammenschlüssen und der ,,Too-Big-To-Fail” Problematik eingegangen.

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Notes

  1. The mean adjusted return model is used by Sushka and Bendeck (1988), Zhang (1995), and Lorenz (2006), among others. The market adjusted return model is employed by Dubofsky and Fraser (1989), Kane (2000), and Houston et al. (2001).

  2. The three factor model is used by Al-Sharkas and Hassan (2010), by Lensink and Maslennikova (2008), and by Choi et al. (2010). The bivariate GARCH approach is utilized by Crouzille et al. (2008) and Lepetit et al. (2004). No banking M&A specific literature has been found to employ the four factor model yet.

  3. Other studies to employ this approach include Zhang (1995), Toyne and Tripp (1998), Becher (2000), Houston et al. (2001), Beitel (2002), Beitel et al. (2004), Becher and Campbell (2005), Lorenz (2006), Mußhoff (2007), Brewer and Jagtiani (2009), and Al-Sharkas and Hassan (2010).

  4. For a comprehensive review of the static efficiency literature see Berger and Humphrey (1994), Berger et al. (1999), and Berger (2000).

  5. The one exception to this general statement is the treatment of equity capital. If it is not accounted for a scale bias can occur, which makes large banks seem more profit efficient than small banks (Berger and Mester 1997.

  6. For example, Kwan and Wilcox (1999) point out the differences in BHCs employing either the purchase or the pooling accounting method. In the purchase method, the premium paid to the target is put on the balance sheet of the acquirer as goodwill and can then be consequently amortized, thus reducing profits and lowering the tax rate. The pooling method simply combines the assets of both institutions and hence does not allow for subsequent tax savings.

  7. It should be mentioned that evidence from DeYoung (1997) suggests that cost efficiency improvements were achieved more often if the target was more efficient than the acquirer.

  8. This result might be due to the methodology Fixler and Zieschang (1993) employ. They use Törnquist productivity indices to describe the results of M&A operations.

  9. Gold (1997) covers the time period from 1972 to 1979, Haun (1996) the one from 1979 to 1988. Baxmann (1995) then covers the 2 year period from 1990 to 1991 and Kondova Georgiev and Burghof (2007) investigate the time period from 1993 to 2004. Drees et al. (2006) additionally investigate four mergers between 1996 and 2000.

  10. For a comprehensive review of the influence of bank governance on acquisition performance in US banking M&As see also Hagendorff et al. (2007).

  11. Palia (1993) uses a different approach and investigates the acquisition premiums managers are willing to pay. His results indicate that a U-shaped relationship exists between management ownership and merger premiums. Managers pay decreasing premiums if they hold up to 5.9 % in their bank. This is in line with equity ownership aligning management and shareholder interest. However, Palia (1993) also shows that ownership of more than 5.9 % increase a manager’s willingness to pay higher premiums again. He argues that high ownership creates the incentive for managers to diversify their previously undiversified financial portfolio by engaging in M&As.

  12. Continental Illinois achieved insignificant returns, since the market already knew that it was considered TBTF by the bailout of the FDIC in May 1984. Security Pacific posted a slightly negative abnormal return.

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  1. Fachgebiet Unternehmensfinanzierung, Fachbereich Rechts- und Wirtschaftswissenschaften, Technische Universität Darmstadt, Hochschulstraße 1, 64289 , Darmstadt, Germany

    Sascha Kolaric & Dirk Schiereck

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  1. Sascha Kolaric
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Kolaric, S., Schiereck, D. Performance of bank mergers and acquisitions: a review of the recent empirical evidence. Manag Rev Q 64, 39–71 (2014). https://doi.org/10.1007/s11301-014-0099-3

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