Long-term Performance of Acquirers Involved in Domestic Bank Ms&As in Europe

Abstract

The consolidation process in the European banking system has been particularly strong in the last two decades. This paper investigates the long-term impact of M&As in the profitability and efficiency of banks. Using a sample of 118 within-border deals in Europe over the period 1996-2010, we highlight features of performance by the use of standard profitability and loan quality ratios. Our results show that in the post-merger period profitability slightly increases after the third year of operation even though initially M&A activity influences negatively our employed measures. Evidence from efficiency ratios is mixed. Some empirical evidence allows us to detect expansionary policies by banking institutions two to three years after the M&A onwards, but results have no definite trend. Over longer time horizons it is clear that banks' loan loss provisions against non-performing loans plummet in a finding related to information sharing in domestic deals. When testing the stock price behavior of merged institutions our empirical evidence does not allow us to infer that there exist opportunities to reap profits throughout the 2-year post-merger horizon.

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“…Furthermore, certain studies investigate the long-term impact of takeover transactions on the corporate performance which are generally measured by traditional profitability measures (return on assets or equity). For example, Kyriazopoulos and Drymbetas (2015) reveal that takeovers deteriorate the corporate performance of acquirers in the first two years following the transaction for domestic takeovers in the banking industry between 1996 and 2010. A similar outcome is reported by Raciborski (2017) for a sample of firms in the pharmaceutical industry between 1998 and 2011.…”