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Beta risk and price synchronicity of bank acquirers’ common stock following merger announcements

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  • Bozos, Konstantinos
  • Koutmos, Dimitrios
  • Song, Wei

Abstract

This article demonstrates that the risk profile of acquiring banks’ common stock changes in the aftermath of a merger announcement when examining 177 large merger deals in the United States spanning from 1998 to 2010 and inclusive of the fifth and sixth merger waves. There is a tendency for beta risk to rise markedly immediately following such announcements and remains relatively high even two years afterwards. This corroborates the view that the newly consolidated big banks resulting from mergers entail higher systematic risk and, instead of providing risk diversification to shareholders, exhibit greater comovement with the market. The broad asset pricing implication here is that the ‘too big to fail’ mentality that arises from large bank mergers actually translates into more risk for shareholders and susceptibility to adverse movements in the aggregate market.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:intfin:v:27:y:2013:i:c:p:47-58
    DOI: 10.1016/j.intfin.2013.07.007
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    Cited by:

    1. Hsiu-I Ting, 2017. "Financial development, role of government, and bank profitability: evidence from the 2008 financial crisis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 370-391, April.
    2. Peng, Cheng & Zhu, Huiming & Jia, Xianghua & You, Wanhai, 2017. "Stock price synchronicity to oil shocks across quantiles: Evidence from Chinese oil firms," Economic Modelling, Elsevier, vol. 61(C), pages 248-259.
    3. Xiaobao SONG & Wunhong SU, 2022. "Heterogeneous Debt Financing and Share Return Volatility," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 85-105, April.
    4. Ioannis Tampakoudis & Andreas Andrikopoulos & Michail Nerantzidis & Nikolaos Kiosses, 2022. "Does boardroom gender diversity affect shareholder wealth? Evidence from bank mergers and acquisitions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3315-3344, July.
    5. Koutmos, Dimitrios, 2019. "Asset pricing factors and bank CDS spreads," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 19-41.

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    More about this item

    Keywords

    Banks; Mergers; Acquisitions; Beta risk; Price synchronicity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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