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Consolidation in the financial services industry: Are there industry gains for acquisitions of security firms?

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  • Aigbe Akhigbe
  • Jarrod Johnston
  • Jeff Madura

Abstract

We examine the revaluation of target security firms, their respective acquirers, both banks and non-banks, and their corresponding rivals before and after the major consolidation wave of 1994 to 1997. We find that target security firms as well as their respective acquirers are favorably revalued at the time of their acquisitions. The valuation effects are more favorable for non-bank acquirers and for acquirers with more growth potential and a lower degree of financial leverage. This suggests that investors expect greater synergies for mergers by better capitalized, faster growing, non-bank acquirers. In contrast to previous merger studies that generally find negative wealth effects for acquiring firms, cumulative abnormal returns (CARs) are on average positive for acquirers, targets, and portfolios of competing security firms, with the highest positive CARs for targets. Copyright Academy of Economics and Finance 2004

Suggested Citation

  • Aigbe Akhigbe & Jarrod Johnston & Jeff Madura, 2004. "Consolidation in the financial services industry: Are there industry gains for acquisitions of security firms?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(1), pages 14-31, March.
    • Handle: RePEc:spr:jecfin:v:28:y:2004:i:1:p:14-31
    DOI: 10.1007/BF02761451
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    References listed on IDEAS

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    Cited by:

    1. Akhigbe, Aigbe & Whyte, Ann Marie, 2012. "Does the use of stock incentives influence the payout policy of financial institutions?," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(1), pages 63-71.

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