An aspect o f the bank holding company "movement" which continues t o receive very l i t t l e a t t e n t i o n i s t h a t o f the BHC a c q u i s i t i o n decision-making process. Previous work by t h i s author has attempted t o examine t h a t process, both by survey o f BHC executives and by examination o f acquired bank and market charact e r i s t i c s .This study explores f u r t h e r the BHC decision-making process by u t i l i z i n g a stepwise discriminant analysis t o examine the acquisitions consummated by f o u r midwestern BHCs.
DesignThe sample consisted o f 44 banks acquired by four midwestern BHCs during the period 1972-1981. For each o f the 44 banks, 12 bank variables and 9 market variables were specified; the p a r t i c u l a r variables were chosen e i t h e r :(1) because past theory o r evidence indicated t h a t those variables were present i n the decision process. o r (2) because BHC executives have indicated t h a t those variables were considered i n the process. Data were c o l l e c t e d f o r these 21 variables f o r each o f f o u r years preceding the year o f a c q u i s i t i o n f o r each bank. Bank data were c o l l e c t e d from Reports o f Incane and Condition and market data were gathered from various sources, including Census information, Bureau o f Labor s t a t i s t i c s , and E d i t o r & Publishers Market Guides. The data were analyzed i n three ways, each employing a stepwise discriminant analysis process. F i r s t , a discriminant function was developed f o r each pre-acquisition year by examining the 12 bank variables f o r a l l 44 a f f i l i a t e s . Second, a discriminant function was developed f o r each pre-acquisition year by examining the 9 market variables f o r a l l 44 a f f i l i a t e s . Finally, a t h i r d discriminant function was developed f o r each pre-acquisition year by examining a l l 21 variables f o r a l l 44 banks. Sumnary and Conclusions The bank measures t o t a l loans/total assets, deposit i n t e r e s t / t o t a l deposits, and loan i n t e r e s t / t o t a l loans proved t o be consistent discriminating variables. No market measures contributed consistently t o the f i n a l d i s c r i m inant functions. This l a t t e r f i n d i n g i s contrary t o previous conceptual and empirical work. The discriminant functions generated by the stepwise process achieved accurate c l a s s i f i c a t i o n o f the banks i n t o t h e i r BHC groups i n a range o f 77% t o 93%. Continuing work w i l l t e s t these discriminant functions on an independent sample o f acquired banks.
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