Are Differences in Acquiring Bank Profit Efficiency Priced in Financial Markets? |
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Authors: | Raj Aggarwal Aigbe Akhigbe James E McNulty |
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Institution: | (1) College of Business Administration, University of Akron, Akron, OH 44325, USA;(2) Department of Finance, College of Business, Florida Atlantic University, Boca Raton, FL 33431, USA |
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Abstract: | We analyze 271 bank mergers for 1986–2001 to attempt to determine if differences among acquirers in profit efficiency are
priced in financial markets. We find that the acquirer’s pre-merger profit efficiency (as well as its experience in handling
other mergers) has positive effects on the wealth of the acquiring bank’s shareholders. We also find that more profit efficient
acquiring banks produce lower abnormal returns for the target, suggesting that well managed (i.e., more profit-efficient)
banks are less likely to overpay when they enter into a merger agreement. Financial market participants apparently take something
akin to the econometric concept of profit efficiency into account when they make decisions about bank stock purchases and
sales around merger announcement dates.
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Keywords: | Profit efficiency cumulative abnormal return Bank Mergers |
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