Learning by observing: information spillovers in the execution and valuation of commercial bank M&As

We hypothesize that banks become better able to manage acquisitions, and investors become better able to value those acquisitions, as these parties ?learn-by-observing? information that spills-over from previous bank M&As. We find evidence consistent with these hypotheses for 216 M&As of large, publicly traded U.S. commercial banks between 1987 and 1999. Our theory and our results are predicated on the idea that acquisitions of large and increasingly complex commercial banks were a relatively new phenomenon in the late-1980s, with no best practices to inform bank managers and little information upon which investors could base their valuations. Our findings provide a new explanation for why academic studies have found little evidence that bank mergers create value. Furthermore, our finding that investors become more accurate pricers of new phenomena as they observe greater quantities of those phenomena is consistent with the theory of semi-strong stock market efficiency.