Bank Mergers and Shareholder Wealth: Evidence from 1995's Megamerger Deals

Abstract

In 1995, the value of U.S. bank mergers and acquisitions reached a record $73 billion, with consolidation among the largest banks surging. Using an event study methodology and data from the largest bank mergers of 1995, I find that acquiring banks in mergers with the highest percentage of office overlaps received significant positive and higher abnormal returns than banks in mergers with fewer office overlaps. However, I find no evidence that acquiring banks in mergers resulting in the largest increases in market concentration received higher abnormal returns. These results suggest that as the banking industry continues to consolidate, expected cost reductions and efficiency improvements, as opposed to potential gains in market power, are rewarded in the financial market at the merger announcement date.

JEL Classification: G14, G21, G34