Learning by Observing: Information Spillovers in the Execution and Valuation of Commercial Bank M&As

Abstract

We offer a new explanation for why academic studies typically fail to find value creation in bank mergers. Our conjectures are predicated on the idea that, until recently, large bank acquisitions were a new phenomenon, with no best practices history to inform bank managers or market investors. We hypothesize that merging banks, and investors pricing bank mergers, "learn-by-observing" information that spills over from previous bank mergers. We find evidence consistent with these conjectures for 216 M&As of large, publicly traded U.S. commercial banks between 1987 and 1999. These findings are consistent with semi-strong stock market efficiency.

Keywords: Mergers, learning, information spillover, banks, market efficiency

JEL Classification: G14, G21, G28, G34