IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v15y2009i1p85-98.html
   My bibliography  Save this article

Bidder returns and merger anticipation: Evidence from banking deregulation

Author

Listed:
  • Becher, David A.

Abstract

This paper examines the anticipated components of bidder returns by focusing on the banking industry around the passage of interstate deregulation (Riegle Neal Act of 1994). Overall, firms that became bidders after Riegle Neal have large significant positive returns during its passage. Moreover, these positive wealth effects are significantly larger than the effects at the merger announcement. These results suggest that bidder returns are anticipated and focusing only on narrow event windows underestimates gains to bidders. Finally, the positive bidder returns appear to provide evidence against both the entrenchment and hubris hypotheses. Additional tests provide evidence to suggest that mergers are motivated by synergy rather than disciplinary motives.

Suggested Citation

  • Becher, David A., 2009. "Bidder returns and merger anticipation: Evidence from banking deregulation," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 85-98, February.
    • Handle: RePEc:eee:corfin:v:15:y:2009:i:1:p:85-98
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929-1199(08)00074-6
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bhagat, Sanjai & Dong, Ming & Hirshleifer, David & Noah, Robert, 2005. "Do tender offers create value? New methods and evidence," Journal of Financial Economics, Elsevier, vol. 76(1), pages 3-60, April.
    2. Billingsley, Randall S. & Lamy, Robert E., 1992. "Regional reciprocal interstate banking: The Supreme Court and the resolution of uncertainty," Journal of Banking & Finance, Elsevier, vol. 16(4), pages 665-686, August.
    3. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    4. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    5. Schipper, Katherine & Thompson, Rex, 1983. "Evidence on the capitalized value of merger activity for acquiring firms," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 85-119, April.
    6. Aigbe Akhigbe & Jeff Madura & Ann Whyte, 2004. "Partial Anticipation and the Gains to Bank Merger Targets," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(1), pages 55-71, August.
    7. Malatesta, Paul H. & Thompson, Rex, 1985. "Partially anticipated events: A model of stock price reactions with an application to corporate acquisitions," Journal of Financial Economics, Elsevier, vol. 14(2), pages 237-250, June.
    8. Black, Harold A & Fields, M Andrew & Schweitzer, Robert L, 1990. "Changes in Interstate Banking Laws: The Impact of Shareholder Wealth," Journal of Finance, American Finance Association, vol. 45(5), pages 1663-1671, December.
    9. Pekka Hietala & Steven N. Kaplan & David T. Robinson, 2003. "What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies," Financial Management, Financial Management Association, vol. 32(3), Fall.
    10. Harold Mulherin, J., 2007. "Measuring the costs and benefits of regulation: Conceptual issues in securities markets," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 421-437, June.
    11. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
    12. Stiroh, Kevin J & Strahan, Philip E, 2003. "Competitive Dynamics of Deregulation: Evidence from U.S. Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 801-828, October.
    13. Fraser, Donald R. & Hooton, Jerry L. & Kolari, James W. & Reising, Joseph J., 1997. "The wealth effects of interstate branching," Journal of Banking & Finance, Elsevier, vol. 21(5), pages 589-611, May.
    14. Becher, David A., 2000. "The valuation effects of bank mergers," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 189-214, July.
    15. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    16. Economides, Nicholas & Hubbard, R Glenn & Palia, Darius, 1996. "The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition among Small and Large Banks," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 667-704, October.
    17. Carow, Kenneth A. & Heron, Randall A., 1998. "The interstate banking and branching efficiency act of 1994: A wealth event for acquisition targets," Journal of Banking & Finance, Elsevier, vol. 22(2), pages 175-196, February.
    18. Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics and Politics of the Relaxation of Bank Branching Restrictions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1437-1467.
    19. repec:bla:jfinan:v:53:y:1998:i:6:p:2185-2204 is not listed on IDEAS
    20. Goldberg, Lawrence G. & Hanweck, Gerald A. & Sugrue, Timothy F., 1992. "Differential impact on bank valuation of interstate banking law changes," Journal of Banking & Finance, Elsevier, vol. 16(6), pages 1143-1158, December.
    21. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    22. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
    23. repec:bla:jfinan:v:53:y:1998:i:1:p:403-416 is not listed on IDEAS
    24. Mandelker, Gershon, 1974. "Risk and return: The case of merging firms," Journal of Financial Economics, Elsevier, vol. 1(4), pages 303-335, December.
    25. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
    26. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 639-670.
    27. Carow, Kenneth A. & Lee, Winson B., 1997. "State passage of interstate banking legislation: An analysis of firm, legislative, and economic characteristics," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 1017-1043, July.
    28. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer.
    29. Michelle Clark Neely & David C. Wheelock, 1997. "Why does bank performance vary across states?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 27-40.
    30. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    31. repec:bla:jfinan:v:59:y:2004:i:1:p:31-63 is not listed on IDEAS
    32. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    33. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    34. Houston, Joel F. & James, Christopher M. & Ryngaert, Michael D., 2001. "Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 285-331, May.
    35. Schwert, G William, 1981. "Using Financial Data to Measure Effects of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 121-158, April.
    36. Akhigbe, Aigbe & Whyte, Ann Marie, 2003. "Changes in market assessments of bank risk following the Riegle-Neal Act of 1994," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 87-102, January.
    37. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    38. DeYoung, Robert & Hasan, Iftekhar & Kirchhoff, Bruce, 1998. "The Impact of Out-of-State Entry on the Cost Efficiency of Local Commercial Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 191-203, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Leledakis, George & Mamatzakis, Emmanuel & Pirgiotakis, Manos & Travlos, Nikolaos, 2017. "What twenty years of regulations have to say about M&As of U.S. banks?," MPRA Paper 82977, University Library of Munich, Germany.
    2. Carletti, Elena & Hartmann, Philipp & Ongena, Steven, 2015. "The economic impact of merger control legislation," International Review of Law and Economics, Elsevier, vol. 42(C), pages 88-104.
    3. Katsafados, Apostolos G. & Androutsopoulos, Ion & Chalkidis, Ilias & Fergadiotis, Emmanouel & Leledakis, George N. & Pyrgiotakis, Emmanouil G., 2021. "Using textual analysis to identify merger participants: Evidence from the U.S. banking industry," Finance Research Letters, Elsevier, vol. 42(C).
    4. Filson, Darren & Olfati, Saman, 2014. "The impacts of Gramm–Leach–Bliley bank diversification on value and risk," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 209-221.
    5. Netter, Jeffry & Poulsen, Annette & Stegemoller, Mike, 2009. "The rise of corporate governance in corporate control research," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 1-9, February.
    6. Carletti, Elena & Hartmann, Philipp & Ongena, Steven, 2007. "The economic impact of merger control: what is special about banking?," Working Paper Series 786, European Central Bank.
    7. Song, Moon H. & Walkling, Ralph A., 2005. "Anticipation, Acquisitions and Bidder Returns," Working Paper Series 2005-11, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    8. Leledakis, George N. & Pyrgiotakis, Emmanouil G., 2022. "U.S. bank M&As in the post-Dodd–Frank Act era: Do they create value?," Journal of Banking & Finance, Elsevier, vol. 135(C).
    9. Tunyi, Abongeh A., 2021. "Revisiting acquirer returns: Evidence from unanticipated deals," Journal of Corporate Finance, Elsevier, vol. 66(C).
    10. Giang Phung & Michael Troege, 2022. "Difficult to digest: Takeovers of distressed banks in Vietnam," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 30(3), pages 489-516, July.
    11. Mittal, Amit & Garg, Ajay Kumar, 2017. "Why do acquirers prefer M&A? Evidence from Banks in India," MPRA Paper 85354, University Library of Munich, Germany.
    12. Katsafados, Apostolos G. & Leledakis, George N. & Pyrgiotakis, Emmanouil G. & Androutsopoulos, Ion & Fergadiotis, Manos, 2024. "Machine learning in bank merger prediction: A text-based approach," European Journal of Operational Research, Elsevier, vol. 312(2), pages 783-797.
    13. Robert Bird & John Knopf, 2015. "The Impact of Local Knowledge on Banking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(1), pages 1-20, August.
    14. Bhabra, Harjeet S. & Hossain, Ashrafee T., 2017. "Impact of SOX on the returns to targets and acquirers in corporate tender offers," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 1-19.
    15. Pablo Moran, 2017. "Information Revelation in Merger Waves," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 6(2), pages 174-233.
    16. Okoeguale, Kevin I. & Loveland, Robert, 2017. "Telecommunications deregulation and the motives for mergers," Journal of Economics and Business, Elsevier, vol. 94(C), pages 15-31.
    17. Grinblatt, Mark & Wan, Kam-Ming, 2020. "State pricing, effectively complete markets, and corporate finance," Journal of Corporate Finance, Elsevier, vol. 60(C).
    18. Bozos, Konstantinos & Koutmos, Dimitrios & Song, Wei, 2013. "Beta risk and price synchronicity of bank acquirers’ common stock following merger announcements," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 47-58.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    2. Leledakis, George N. & Pyrgiotakis, Emmanouil G., 2022. "U.S. bank M&As in the post-Dodd–Frank Act era: Do they create value?," Journal of Banking & Finance, Elsevier, vol. 135(C).
    3. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    4. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    5. Bhagat, Sanjai & Dong, Ming & Hirshleifer, David & Noah, Robert, 2005. "Do tender offers create value? New methods and evidence," Journal of Financial Economics, Elsevier, vol. 76(1), pages 3-60, April.
    6. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    7. Carow, Kenneth A. & Heron, Randall A., 1998. "The interstate banking and branching efficiency act of 1994: A wealth event for acquisition targets," Journal of Banking & Finance, Elsevier, vol. 22(2), pages 175-196, February.
    8. Carow, Kenneth A. & Kane, Edward J., 2002. "Event-study evidence of the value of relaxing long-standing regulatory restraints on banks, 1970-2000," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(3), pages 439-463.
    9. Song, Moon H. & Walkling, Ralph A., 2005. "Anticipation, Acquisitions and Bidder Returns," Working Paper Series 2005-11, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    10. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    11. Hoa Luong & Lien Duong & John Evans, 2022. "CEO pay disparity, takeover premiums and bidder performance in Australia: efficient contracting or managerial power?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 143-179, March.
    12. Martynova, M. & Renneboog, L.D.R., 2006. "The Performance of the European Market for Corporate Control : Evidence from the 5th Takeover Wave," Discussion Paper 2006-118, Tilburg University, Center for Economic Research.
    13. Dimitris Chronopoulos & Claudia Girardone & John Nankervis, 2013. "How Do Stock Markets in the US and Europe Price Efficiency Gains from Bank M&As?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(3), pages 243-263, June.
    14. Alexandridis, G. & Antypas, N. & Travlos, N., 2017. "Value creation from M&As: New evidence," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 632-650.
    15. Vinay Patel, 2015. "Price Discovery in US and Australian Stock and Options Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 27, July-Dece.
    16. Leledakis, George & Mamatzakis, Emmanuel & Pirgiotakis, Manos & Travlos, Nikolaos, 2017. "What twenty years of regulations have to say about M&As of U.S. banks?," MPRA Paper 82977, University Library of Munich, Germany.
    17. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.
    18. Antonios Antoniou & Philippe Arbour & Huainan Zhao, 2008. "How Much Is Too Much: Are Merger Premiums Too High?," European Financial Management, European Financial Management Association, vol. 14(2), pages 268-287, March.
    19. Tilan Tang, 2015. "Bidder's Gain: Evidence from Termination Returns," International Review of Finance, International Review of Finance Ltd., vol. 15(4), pages 457-487, December.
    20. Nagano, Mamoru & Yuan, Yuan, 2013. "Cross-border acquisitions in a transition economy: The recent experiences of China and India," Journal of Asian Economics, Elsevier, vol. 24(C), pages 66-79.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:15:y:2009:i:1:p:85-98. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.