Cross-Industry Product Diversification and Contagion in Risk and Return: The Case of Bank-Insurance Takeovers

Elyasiani, Elyas; Staikouras, Sotiris K.; Dontis-Charitos, Panagiotis

doi:10.2139/ssrn.2084681

Cited by 3 publications

(11 citation statements)

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“…The event-study method enables us to estimate the effect that an event has on firms' securities (Fama et al, 1969;MacKinlay, 1997). However, traditional event studies only estimate abnormal returns of stocks around M&A announcements (Akhigbe & Madura, 2001;Alexandridis et al, 2017;Amihud et al, 2002;Balaban & Constantinou, 2006;Eckbo, 1983;Elyasiani et al, 2016;Goddard et al, 2012;Hankir et al, 2011;Houston & Ryngaert, 1994;Humphery-Jenner et al, 2017). Because the objective of this article is to analyze the effect of M&A announcements on the mean and variance of bank returns, we conduct a GARCH event study, which allows us to estimate the impact of M&A announcements on stocks' mean and variance of acquirer, target, and rival banks.…”

Section: Methodsmentioning

confidence: 99%

“…From the theoretical and empirical point of view, the impact of M&A announcements on stock volatility depends on the interaction between the positive and negative effects of the deal (Amihud et al, 2002;Bozos et al, 2013;Casu et al, 2016). On the one hand, the synergy and profits that the deal may generate create uncertainty about the future of the company, which may increase stock volatility, but, on the other hand, the new information provided by announcement of the deal may cause investors' opinions about the price of the acquirer's stock to converge, which reduces volatility (Elyasiani et al, 2016). Gentera 2014-10-16 Pagos Intermex 0.0038 *** (0.0000) 0.0000 (0.9591) Mexico…”

Section: Acquirersmentioning

confidence: 99%

“…2 is statistically significantly different from zero in Brazil and Colombia. stock price converges to their intrinsic value, which leads volatility to decrease (Chang & Cho, 2017;Elyasiani et al, 2016;Gelman & Wilfling, 2009;Hutson & Kearney, 2001). 1 for average cumulative abnormal returns (ACAR) and 2 for average event-induced variance (AEIV).…”

Section: Acquirersmentioning

confidence: 99%

“…However, an increase in volatility could result either because of the unclear purpose of the deal or because of the rise in the concentration of market power (Amihud et al, 2002;Bozos et al, 2013;Casu, Dontis-Charitos, Staikouras, & Williams, 2016;Elyasiani et al, 2016). Although the literature focuses on the effects of the M&A announcements on shareholder wealth for acquirers, targets, and rivals, the impact on volatility has been explored less.…”

Section: Introductionmentioning

confidence: 99%

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The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

2020

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Section: Methodsmentioning

confidence: 99%

Section: Acquirersmentioning

confidence: 99%

Section: Acquirersmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

2020

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“…7 However, as mentioned above, the effects may be different in emerging economies. Specifically, one relevant issue in M&As is the effect of announcements in terms of creating value for shareholders and their possible impact on stock volatility (Elyasiani, Staikouras, & Dontis-Charitos, 2016;Hankir, Rauch, & Umber, 2011;Houston & Ryngaert, 1994;Humphery-Jenner, Sautner, & Suchard, 2017;Hutson & Kearney, 2001;Nain & Wang, 2016;Piloff & Santomero, 1998). Thus, this paper has two goals: first, to quantify whether M&A announcements generate abnormal returns for the acquirer, the target, and rival banks; second, to measure whether M&A announcements create market volatility due to evidence about acquirers, targets, and rivals.…”

Section: Introductionmentioning

confidence: 99%

The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

Lozada

Cortés

Velásquez-Gaviria

2021

Latin American Business Review

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Mergers and acquisitions (M&As) are mainly a mechanism used in the Latin American banking industry to carry out business consolidation. This paper focuses on the effect of M&A announcements on stocks of Latin American banks and their rivals between 2000 and 2019. We evaluate two impacts of M&A announcements: impacts on cumulative abnormal returns (CAR) and impacts on event-induced variance (EIV). We use the GARCH-based event-study method. We find that acquirers and target banks have a statistically significant CAR, however, the sign is inconclusive. Rivals of acquirers and targets are not affected by M&A announcements. In general, we observe that EIV is negative for acquirers, targets, and rivals. Finally, we estimate a multivariate GARCH model to isolate the effects of co-movements of volatility between the acquirer and the target, and we find that the results remain qualitatively equal.

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Bank mergers: the cyclical behaviour of regulation, risk and returns

Hassan

Giouvris

2021

JFEP

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Purpose The purpose of this paper is to examine the effects of bank mergers on systemic and systematic risks on the relative merits of product and market diversification strategies. It also observes determinants of M&A deals criteria, product and market diversification positioning, crisis threshold and other regulatory and market factors. Design/methodology/approach This research examines the impact and association between merger announcements and regulatory reforms at bank and system levels by investigating the impact of various bank consolidation strategies on firms’ risks. We estimate beta(s) as an index of financial institutions’ systematic risk. We then develop an index of the estimated equity value loss as the long-rum marginal expected shortfall (LRMES). LRMES contributes to compute systemic risk (SRISK) contribution of these firms, which is the capital that a firm is expected to need if we have another financial crisis. Findings Large acquiring banks decrease systemic risk contribution in cross-border M&As with a non-bank financial institution, and witness profitability (ROA) gains, supporting geographic diversification stability. Capital requirements, activity restrictions and bank concentration increase systemic risk contribution in national mergers. Bank mergers with investment FIs targets enhance productivity but impair technical efficiency, contrary to bank-real estate deals where technical efficiency change accompanied lower systemic risk contribution. Practical implications Financial institutions are recommended to avoid trapped capital and liquidity by efficiently using local balance sheet and strengthening them via implementing models that clearly set diversification and netting benefits to determine capital reserves and to drive capital efficiency through the clarity on product–activity–geography diversification and focus. This contributes to successful ringfencing, decreases compliance costs and maximises returns and minimises several risks including systemic risk. Social implications Policy implications: the adversative properties of bank mergers in respect of systemic risk require strict and innovative monitoring of bank mergers from the bidding level by both acquirers and targets and regulators and competition supervisory bodies. Moreover, emphasis on regulators/governments intervention and role, as it provides a stabilising factor of the markets and consecutively lower systemic risk even if the systematic idiosyncratic risk contribution was significant. However, such roles have to be well planned and scaled to avoid providing motives for banks to seek too-big-too-fail or too-big-to-discipline status. Originality/value This research contributes to the renewing regulatory debate on banks sustainable structures by examining the risk effect of bank diversification versus focus. The authors aim to address the multidimensional impacts and risks inherent to M&A deals, by examining the extent of the interconnectedness of M&A and its implications within and beyond the banking sector.

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Cross-Industry Product Diversification and Contagion in Risk and Return: The Case of Bank-Insurance Takeovers

Cited by 3 publications

References 89 publications

The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

Bank mergers: the cyclical behaviour of regulation, risk and returns

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