Gains in Bank Mergers: Evidence from the Bond Markets

Abstract

This paper presents evidence that merging banks' bond adjusted returns are positive and significant in premerger and announcement months. Also, the acquiring banks' credit spreads on new debt issues are lower after the merger. Diversification and incremental size attained in the merger are significant determinants of the bond returns and the decline in credit spreads, after controlling for leverage and asset quality changes. Size effects are only significant for medium-size banks.

Keywords: bank mergers, bond markets, diversification, Too big to fail

JEL Classification: G21, G28, G34