Do Acquisitions Create Value? Evidence from the US and European Bank Acquisitions During Financial Crisis

28 Pages Posted: 19 Sep 2010

See all articles by Sarina Ar-Loc Ng

Sarina Ar-Loc Ng

California State University, San Bernardino

Mohammad (Amir) T. Vaziri

California State University, San Bernardino

Rafiqul Bhuyan

California State University, San Bernardino

Date Written: September 16, 2010

Abstract

In this research, we investigate the valuation effect on acquiring banks during different window of events. The research is conducted on the US and the European banks mergers and acquisition during the period of 2004 through 2010 with special focus on bank mergers during the financial crisis of this decade. During this crisis period when many big banks are also on the verge of bankruptcy, many mergers and acquisitions take place in the United States in Europe. Using traditional event study methodology, we investigate the wealth effect on acquiring banks to understand the market reaction in bank acquisitions announcements. We observe those acquisition announcements, on average; create a 0.3% and 0.8% gain in the United States and European countries, respectively to the acquiring bank. When we focus on banks with different size and location, we, however, find that, on average, American acquiring banks lose 18% who employ 10,000-100,000 and European banks lose 6% with same employment size. Furthermore, American acquiring banks lose 17% and 12% that are headquartered in the Western and Midwestern states respectively. Our results offer further evidence to the literature that, shareholders of acquiring banks face negative wealth effect even when they acquire other banks during crisis period.

Keywords: Acquisitions, mergers, banks, event study, bankruptcy, financial crisis

JEL Classification: G21, G34

Suggested Citation

Ng, Sarina Ar-Loc and Vaziri, Mohammad (Amir) T. and Bhuyan, Rafiqul, Do Acquisitions Create Value? Evidence from the US and European Bank Acquisitions During Financial Crisis (September 16, 2010). Available at SSRN: https://ssrn.com/abstract=1678049 or http://dx.doi.org/10.2139/ssrn.1678049

Sarina Ar-Loc Ng

California State University, San Bernardino

5500 University Parkway
San Bernardino, CA 92407
United States

Mohammad (Amir) T. Vaziri

California State University, San Bernardino ( email )

5500 University Parkway
San Bernardino, CA 92407
United States

Rafiqul Bhuyan (Contact Author)

California State University, San Bernardino ( email )

United States

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