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A New Application of Sustainable Growth: A Multi‐Dimensional Framework for Evaluating the Long Run Performance of Bank Mergers

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  • Gerard T. Olson
  • Michael S. Pagano

Abstract

We study the mergers of US publicly traded bank holding companies during 1987–2000 and find that the acquiring firm's sustainable growth rate is an important determinant of the cross‐sectional variation in the merged entity's long‐term operating and stock performance. The most economically significant determinants of the merged bank's abnormal stock return performance are the acquiring bank's estimated sustainable growth rate prior to the acquisition, as well as post‐acquisition changes in this growth rate, and the bank's dividend payout ratio. Our findings are robust even after controlling for several potentially confounding factors.

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  • Gerard T. Olson & Michael S. Pagano, 2005. "A New Application of Sustainable Growth: A Multi‐Dimensional Framework for Evaluating the Long Run Performance of Bank Mergers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9‐10), pages 1995-2036, November.
    • Handle: RePEc:bla:jbfnac:v:32:y:2005:i:9-10:p:1995-2036
    DOI: 10.1111/j.0306-686X.2005.00656.x
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    Cited by:

    1. Farouq Rafiq Altahtamouni & Zaher Abdelfattah Alslehat, 2014. "The Impact of Accounting Indicators and Growth on the Market Value," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 9-18, April.
    2. repec:hur:ijaraf:v:4:y:2014:i:2:p:13-22 is not listed on IDEAS
    3. Greg Filbeck & Dianna Preece & Xin Zhao, 2013. "Top performing banks: the benefits to investors," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(4), pages 560-583, October.
    4. Ioan-Alexandru Dumitrescu & Alin-Ionuț Dorobanțu, 2023. "Analysis of the impact of financial balance indicators on the stock market performance of companies listed on the Bucharest Stock Exchange," Journal of Financial Studies, Institute of Financial Studies, vol. 14(8), pages 72-82, June.
    5. Cyree, Ken B., 2010. "What do bank acquirers value in non-public bank mergers and acquisitions?," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 341-351, August.
    6. Adel Bino & Elisabeta Pana, 2011. "Firm value and investment policy around stock for stock mergers," Review of Quantitative Finance and Accounting, Springer, vol. 37(2), pages 207-221, August.
    7. repec:fst:rfsisf:v:8:y:2023:i:special-june_2023:p:72-82 is not listed on IDEAS
    8. Isnurhadi & Sulastri & Yulia Saftiana & Ferry Jie, 2022. "Banking Industry Sustainable Growth Rate under Risk: Empirical Study of the Banking Industry in ASEAN Countries," Sustainability, MDPI, vol. 15(1), pages 1-21, December.
    9. Reddy, K. Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2012. "Corporate mergers and financial performance: A new assessment of Indian cases," MPRA Paper 60425, University Library of Munich, Germany, revised 2013.
    10. Tamy Al-Binali & Ahmet Faruk Aysan & Hasan Dinçer & Ibrahim Musa Unal & Serhat Yüksel, 2023. "New Horizons in Bank Mergers: A Quantum Spherical Fuzzy Decision-Making Framework for Analyzing Islamic and Conventional Bank Mergers and Enhancing Resilience," Sustainability, MDPI, vol. 15(10), pages 1-37, May.
    11. Patel, Pankaj C. & João Guedes, Maria & Pagano, Michael S. & Olson, Gerard T., 2020. "Industry profitability matters: The value of sustainable growth rate and distance from bankruptcy as enablers of venture survival," Journal of Business Research, Elsevier, vol. 114(C), pages 80-92.

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