Short-term Stock Price Behaviour around European Cross-border Bank M&As

The current study explores the short-term stock price reaction of cross-border bank mergers and acquisitions (M&As) in Western Europe for the period 1998-2009 which includes 40 M&A deals. Employing the classical event study methodology, we probe into the stock price effects of cross-border bank M&As by calculating abnormal returns for both bidders and targets. Moreover, we employ multivariate regression analysis in order to identify the determinants of value creation from cross-border bank M&As. Consistent with the pertinent literature, we demonstrate that targets significantly benefit from M&As, while bidders undergo price erosions during the M&A days. In specific, we find positive and significant abnormal stock price reaction of more than 3% on M&A day for targets and negative abnormal returns for bidders. The differential market behaviour between bidders and targets is more evident when the return on equity of the involved banks is taken into account.