The value effects of bank mergers and acquisitions

  • Steven J. Piloff
  • Anthony M. Santomero
Part of the The New York University Salomon Center Series on Financial Markets and Institutions book series (SALO, volume 3)


The banking industry has experienced an unprecedented level of consolidation on a belief that gains can accrue through expense reduction, increased market power, reduced earnings volatility, and scale and scope economies. A review of the literature suggests that the value gains that are alleged have not been verified. The paper then seeks to address alternative explanations and reconcile the data with continued merger activity. In general, we find these explanations are rationalizations for the non existence of positive value outcomes, not alternative, testable theories. Recently, a new thread of the literature has developed which seeks to understand individual cases, looking into the process of change for a particular merger. This approach seems potentially rewarding and revealing, but what we will learn is still an open question.


Abnormal Return Banking Industry Efficiency Gain Profit Efficiency Scope Economy 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Akhavein, J., A. Berger and D. Humphrey, “The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function,” Review of Industrial Organization 12, forthcoming, 1997.Google Scholar
  2. Amel, D, D., “State Laws Affecting Commercial Bank Branching, Multibank Holding Company Expansion, and Interstate Banking,” Working Paper, Board of Governors of the Federal System, 1991.Google Scholar
  3. American Banker,“Mergers and Acquisitions Roundup,” January 29, 1996.Google Scholar
  4. Beatty, R., A. Santomero, and M. Smirlock, “Bank Merger Premiums: Analysis and Evidence,” Monographs in Finance and Economics, Salomon Brothers Center, New York University, 1987.Google Scholar
  5. Berger A., D. Hancock, and D. Humphrey, “Bank Efficiency Derived from the Profit Function,” Journal of Banking and Finance 17 (2–3): 317–47, April 1993.CrossRefGoogle Scholar
  6. Berger, A., G. Hanweck and D. Humphrey, “Competitive Viability in Banking: Scale and Scope and Product Mix Economies,” Journal of Monetary Economics 20 (3): 501–20, December 1987.CrossRefGoogle Scholar
  7. Berger, A. and D. Humphrey, “Bank Scale Economies, Mergers, Concentration and Efficiency: The U.S. Experience,” Working Paper 94–25, Wharton Financial Institutions Center, University of Pennsylvania, 1994.Google Scholar
  8. Berger, A. and D. Humphrey, “The Dominance of Inefficiencies over Scale and Product Mix Economies in Banking,” Journal of Monetary Economics 28 (1): 117–48, August 1991.CrossRefGoogle Scholar
  9. Berger, A. and D. Humphrey, “Megamergers in Banking and the Use of Cost Efficiency as an Antitrust Defense,” The Antitrust Bulletin 37 (3): 541–600, Fall 1992.Google Scholar
  10. Berger, A., W. C. Hunter and S. G. Timme, “The Efficiency of Financial Institutions: A Review and Preview of Research Past, Present, and Future,” Journal of Banking and Finance 17 (2–3): 221–249, April 1993.CrossRefGoogle Scholar
  11. Calomiris, C. and J. Karenski, “The Bank Merger Wave of the 1990s: Nine Case Studies,” University of Illinois, 1996.Google Scholar
  12. Chamberlain, Sandra L, Sandra L., “The Effect of Bank Ownership Changes on Subsidiary-Level Earnings,” Bank Mergers and Acquisitions, Kluwer, forthcoming 1997.Google Scholar
  13. Clark, Jeffrey A., “Economies of Scale and Scope at Depository Financial Institutions: A Review of the Literature,” Economic Review, Federal Reserve Bank of Kansas City, 73 (8): 16–33, 1988.Google Scholar
  14. Cline, Kenneth, “Nations Bank Sees Boatmen’s Revenue Potential” American Banker, September 25, 1996.Google Scholar
  15. Cornett, Marcia Millon and Hassan Tehranian, “Changes in Corporate Performance Associated with Bank Acquisitions,” Journal of Financial Economics 31 (2): 211–234, April 1992.CrossRefGoogle Scholar
  16. Crockett, Barton “First Bank Claims Wells Overstated Deal Savings”, American Banker, November 20, 1995.Google Scholar
  17. Cybo-Ottone, Alberto and Maurizio Murgia, “Mergers and Acquisitions in the European Banking Market,” Working Paper, University of Pavia, Italy, 1996.Google Scholar
  18. DeYoung, Robert, “Determinants of Cost Efficiencies in Bank Mergers,” Working Paper 93–1, Office of the Comptroller of the Currency, 1993.Google Scholar
  19. Fama, Eugene, “Agency Problems and the Theory of the Firm,” The Journal of Political Economy 88 (2): 288–307, April 1980.CrossRefGoogle Scholar
  20. Frei, Frances and Patrick Harker, “Measuring the Efficiency of Service Delivery Processes: With Application to Retail Banking,” Working Paper 96–31, Wharton Financial Institutions Center, University of Pennsylvania, 1996.Google Scholar
  21. Frei, Frances, Patrick Harker and Larry Hunter, “Performance in Consumer Financial Services Organizations: Framework and Results from the Pilot Study,” Working Paper 95–03, Wharton Financial Institutions Center, University of Pennsylvania, 1995.Google Scholar
  22. Hannan, Timothy H. and John D. Wolken, “Returns to Bidders and Targets in the Acquisition Process: Evidence from the Banking Industry,” Journal of Financial Services Research 3 (1): 516, October 1989.CrossRefGoogle Scholar
  23. Hawawini, Gabriel and Itzhak Swary, Mergers and Acquisitions in the U.S. Banking Industry: Evidence from the Capital Markets, Elsevier Science Publishers B.V., Amsterdam, the Netherlands, 1990.Google Scholar
  24. Healy, Paul M., Krishna G. Palepu and Richard S. Ruback, “Does Corporate Performance Improve After Mergers?” Journal of Financial Economics, 31 (2): 135–175, April 1992. Houston, Joel F. and Michael D. Ryngaert, “The Overall Gains from Large Bank Mergers,” Journal of Banking and Finance 18 (6): 1155–1176, December 1994.CrossRefGoogle Scholar
  25. Humphrey, David B., “Why Do Estimates of Bank Scale Economies Differ?” Federal Reserve Bank of Richmond, Economic Review 76 (5): 38–50, September/October 1990.Google Scholar
  26. Linder, Jane C. and Dwight B. Crane, “Bank Mergers: Integration and Profitability,” Journal of Financial Services Research 7 (1): 35–55, January 1993.CrossRefGoogle Scholar
  27. Madura, J. and K. J. Wiant, “Long-Term Valuation Effects of Bank Acquisitions,” Journal of Banking and Finance 18 (6): 1135–1154, December 1994.CrossRefGoogle Scholar
  28. Morck, R., A. Shleifer and R.Vishny, “Do Managerial Objectives Drive Bad Acquisitions?” Journal of Finance 45 (1): 31–48, March 1990.CrossRefGoogle Scholar
  29. Pilloff, Steven J., Steven J., “Performance Changes and Shareholder Wealth Creation Associated with Mergers of Publicly Traded Banking Institutions,” Journal of Money, Credit and Banking 28: 294–310, 1996.CrossRefGoogle Scholar
  30. Rhoades, Stephen A, “The Efficiency Effects of Bank Mergers: Rationale for Case Study Approach and Preliminary Findings,” Proceedings of a Conference on Bank Structure and Competition, Federal Reserve Bank of Chicago, 1993.Google Scholar
  31. Rhoades, Stephen A., “The Operating Performance of Acquired Firms in Banking,” in Wills, Caswell, Culbertson eds.: Issues after a Century of Federal Competition Policy, Lexington Books, Lexington, MA, 1987.Google Scholar
  32. Rhoades, Stephen A., “Billion Dollar Bank Acquisitions: A Note on the Performance Effects”, Mimeo, Board of Governors of the Federal Reserve System, 1990.Google Scholar
  33. Rhoades, Stephen A., “Efficiency Effects of Horizontal (In-Market) Bank Mergers,” Journal of Banking and Finance 17 (2–3): 411–422, April 1993.CrossRefGoogle Scholar
  34. Rhoades, Stephen A., “A Summary of Merger Performance Studies in Banking, 1980–1993, and an Assessment of the `Operating Performance’ and `Event Study’ Methodologies,” The Federal Reserve Bulletin 80 (7): 588–590, July 1994.Google Scholar
  35. Roll, Richard, “The Hubris Hypothesis of Corporate Takeovers,” Journal of Business, 59 (2), Part 1: 197–216, April 1986.Google Scholar
  36. Santomero, Anthony M., “Financial Risk Management: The Whys And Hows,” Financial Markets, Instruments and Institutions 4 (5): 1–14, 1995.Google Scholar
  37. Saunders, Anthony, and Ingo Walters, Universal Banking in the US: What Could We Gain? What Could We Lose?, Oxford University Press, 1994.Google Scholar
  38. Spindt, Paul A. and Vefa Tarham, “The Impact of Mergers on Bank Operating Performance,” Working Paper, Tulane University, 1993.Google Scholar
  39. Srinivasan, Aruna, “Are There Cost Savings from Bank Mergers?” Federal Reserve Bank of Atlanta, Economic Review 77 (2): 17–28, March/April 1992.Google Scholar
  40. Srinivasan, Aruna and Larry D. Wall, “Cost Savings Associated with Bank Mergers,” Working Paper 92–2, Federal Reserve Bank of Atlanta, 1992.Google Scholar
  41. Zhang, Hao, “Wealth Effects of U.S. Bank Takeovers,” Applied Financial Economics (55) 5: 329336, October 1995.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 1998

Authors and Affiliations

  • Steven J. Piloff
  • Anthony M. Santomero

There are no affiliations available

Personalised recommendations