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The Cost of Using Bank Mergers as Defensive Mechanisms against Takeover Threats

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  • Henock Louis

    (Pennsylvania State University)

Abstract

This study shows that targeted banks that become acquirers generally overpay. The evidence suggests that bank mergers are effective devices against takeovers. Targeted banks that engage in acquisitions are less likely to be taken over than are targeted banks that do not engage in acquisitions. However, such a strategy is costly. I find that market reactions to bank mergers involving recently targeted acquirers are significantly more negative than market reactions to mergers involving nontargeted acquirers. This is consistent with the market perceiving acquisitions by targeted banks as being generally defensive in nature.

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  • Henock Louis, 2004. "The Cost of Using Bank Mergers as Defensive Mechanisms against Takeover Threats," The Journal of Business, University of Chicago Press, vol. 77(2), pages 295-310, April.
    • Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:2:p:295-310
    DOI: 10.1086/381278
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    Cited by:

    1. Díaz Díaz, Belén & Sanfilippo Azofra, Sergio & López Gutiérrez, Carlos, 2013. "Synergies or overpayment in European corporate M&A," MPRA Paper 51070, University Library of Munich, Germany.
    2. Louis, Henock, 2005. "Acquirers' abnormal returns and the non-Big 4 auditor clientele effect," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 75-99, December.
    3. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc.
    4. Fangming Xu & Huainan Zhao, 2013. "Three-Way Takeovers," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(1), pages 67-90, January.
    5. Valkanov, Emil & Kleimeier, Stefanie, 2007. "The role of regulatory capital in international bank mergers and acquisitions," Research in International Business and Finance, Elsevier, vol. 21(1), pages 50-68, January.
    6. Henock Louis & Amy Sun, 2010. "Investor Inattention and the Market Reaction to Merger Announcements," Management Science, INFORMS, vol. 56(10), pages 1781-1793, October.
    7. Gong, Guojin & Louis, Henock & Sun, Amy X., 2008. "Earnings management, lawsuits, and stock-for-stock acquirers' market performance," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 62-77, September.
    8. Carow, Kenneth A. & Cox, Steven R. & Roden, Dianne M., 2009. "Demutualization: Determinants and consequences of the mutual holding company choice," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1454-1463, August.
    9. Louis, Henock, 2004. "Earnings management and the market performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 74(1), pages 121-148, October.

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