Bank acquisition of non-bank firms An empirical analysis of administrative decisions

This study uses stock price data to examine certain aspects of Federal Reserve Boards' administrative decisions regarding non-bank acquisitions by bank holding companies (BHCs). The results suggest that stockholders of BHCs whose acquisition plans were approved realized positive abnormal returns following the announcement of the acquisition of a non-bank firm. This result is consistent with the synergy interpretation of non-bank acquisitions by BHCs. Another finding is that stockholders of BHCs that were denied permission to acquire non-bank firms sustained significant losses during the five weeks following the Board's decision. These abnormal losses can be interpreted as foregone synergy rents or as a market reaction to the Board's signal that the BHC in question is excessively risky.