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Post‐Merger Performance of Bank Holding Companies, 1987–1998

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  • Morris Knapp
  • Alan Gart
  • David Becher

Abstract

This paper examines the results of material mergers between bank holding companies (BHCs). Merged BHCs experience post‐merger profitability below the industry average. The market reaction to the merger announcements is significantly negative. The most important causes of the poor post‐merger performance are credit quality and the inadequate generation of fee income. Asset mix and capitalization also play a major part. The controllability of these items demonstrates the management challenge associated with a material merger.

Suggested Citation

  • Morris Knapp & Alan Gart & David Becher, 2005. "Post‐Merger Performance of Bank Holding Companies, 1987–1998," The Financial Review, Eastern Finance Association, vol. 40(4), pages 549-574, November.
    • Handle: RePEc:bla:finrev:v:40:y:2005:i:4:p:549-574
    DOI: 10.1111/j.1540-6288.2005.00124.x
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    Cited by:

    1. Maretno Harjoto & Ha-Chin Yi & Tosporn Chotigeat, 2012. "Why do banks acquire non-banks?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(3), pages 587-612, July.
    2. John Goddard & Donal McKillop & John Wilson, 2009. "Which Credit Unions are Acquired?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 231-252, December.
    3. Neale Faith R. & Drake Pamela Peterson & Clark Steven P., 2010. "Diversification in the Financial Services Industry: The Effect of the Financial Modernization Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-30, March.
    4. Ji, Mingming & Jiang, Liangliang, 2022. "Aggressive CEOs and bank mergers and acquisitions," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    5. Ana Lozano-Vivas & Subal Kumbhakar & Meryem Fethi & Mohamed Shaban, 2011. "Consolidation in the European banking industry: how effective is it?," Journal of Productivity Analysis, Springer, vol. 36(3), pages 247-261, December.
    6. Jens Hagendorff & Kevin Keasey, 2009. "Post‐merger strategy and performance: evidence from the US and European banking industries," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 725-751, December.
    7. Qamar Abbas & Rashid Saeed & Ehsan-Ul-Hassan & Muhammad Shahzad Ijaz, 2014. "Analysis of Pre and Post Merger and Acquisition Financial Performance of Banks in Pakistan," Information Management and Business Review, AMH International, vol. 6(4), pages 177-190.
    8. Jens Hagendorff & Maria J. Nieto & Larry D. Wall, 2012. "The safety and soundness effects of bank M&A in the EU," FRB Atlanta Working Paper 2012-13, Federal Reserve Bank of Atlanta.
    9. Jian Huang & Han Yu & Zhen Zhang, 2023. "External vs. In-House Advising Service: Evidence from the Financial Industry Acquisitions," JRFM, MDPI, vol. 16(2), pages 1-21, January.
    10. Jens Hagendorff & Maria J. Nieto, 2015. "The Safety and Soundness Effects of Bank M&A in the EU: Does Prudential Regulation Have any Impact?," European Financial Management, European Financial Management Association, vol. 21(3), pages 462-490, June.
    11. Chris Brune & Kevin Lee & Scott Miller, 2015. "The effects of bank capital constraints on post-acquisition performance," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 75-99, January.
    12. Gholam R. Amin & Mustapha Ibn Boamah, 2020. "A new inverse DEA cost efficiency model for estimating potential merger gains: a case of Canadian banks," Annals of Operations Research, Springer, vol. 295(1), pages 21-36, December.
    13. Shi Chen & Jeng-Yan Tsai & Rosemary Jou, 2016. "Equities of scope as merger incentives under capital regulation: narrow versus synergy banking valuation," Applied Economics, Taylor & Francis Journals, vol. 48(37), pages 3508-3525, August.
    14. Al-Khasawneh, Jamal Ali & Essaddam, Naceur, 2012. "Market reaction to the merger announcements of US banks: A non-parametric X-efficiency framework," Global Finance Journal, Elsevier, vol. 23(3), pages 167-183.
    15. Subhash C. Ray & Shilpa Sethia, 2022. "Nonparametric measurement of potential gains from mergers: an additive decomposition and application to Indian bank mergers," Journal of Productivity Analysis, Springer, vol. 57(2), pages 115-130, April.
    16. Abbas, Qamar & Hunjra, Ahmed Imran & Azam, Rauf I & Ijaz, Muhammad Shahzad & Zahid, Maliha, 2014. "Financial performance of banks in Pakistan after Merger and Acquisition," MPRA Paper 60790, University Library of Munich, Germany.
    17. Hristos Doucouliagos & Janto Haman & Saeed Askary, 2007. "Directors' Remuneration and Performance in Australian Banking," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1363-1383, November.

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