Post‐merger strategy and performance: evidence from the US and European banking industries

Abstract

The banking industry has one of the most active markets for mergers and acquisitions. However, little is known about the type of operational strategies adopted by banking firms in the years following a deal. For a sample of bidding banks in the USA and Europe, this study compares the design and performance implications of different post-merger strategies in both geographical regions. Using accounting data, we show that European banks pursue a cost-cutting strategy by increasing efficiency levels vis-à-vis non-merging banks and by cutting back on both labour costs and lending activities. US banks, on the other hand, raise both interest and non-interest income in the post-merger period. Copyright (c) The Authors. Journal compilation (c) 2009 AFAANZ.

Are All Bank Acquisitions Equal? The Impact of Bank Mergers and Acquisitions around the 2007-2009 Financial Crisis: Evidence from TARP

“…Cornett et al [8] find that large, activity-focusing or geographic-focusing mergers during 1990-2000 produce greater performance gains compare to small or diversifying mergers, and the performance improvements are traced back to both revenue enhancements and cost reduction activities. Hagendorff and Keasy [3] find no evidence of improvements in the overall post-merger performance for mergers announced during 1996-2004, and this is consistent with their findings of revenue enhancements due to improvements in both interest and non-interest income, and efficiency deterioration due to increase costs and lower productivity. Al-Khasawnen and Essaddam [20] identify two main weaknesses of the operating performance approach based on accounting ratios.…”

“…Other studies seek to identify the sources and channels governing changes in post-acquisition performance [3]. Cornett et al [8] find that large, activity-focusing or geographic-focusing mergers during 1990-2000 produce greater performance gains compare to small or diversifying mergers, and the performance improvements are traced back to both revenue enhancements and cost reduction activities.…”

“…Chuang [32] investigates the relation between the deal advisor and the extent of shareholder wealth effect around merger announcement with an observing period during 1995-2010. Hagendroff and Keasey [3] examine the relation between post-acquisition strategy and merged bank performance using deals announced during 1996-2004. To the best of our knowledge there is limited empirical research into operating performance changes of mergers around the financial crisis.…”

“…Cornett and Terhanian [21], and Hagendroff and Keasey [3] both exclude deals with a total value less than 100 million to ensure the merger is an important corporate event to the acquiring bank and will therefore likely generate identifiable changes in operating performance. However, this study does not put a lower-bound on the size of the deal value.…”

“…As the trend of deregulation in the financial industry, academic studies start to examine acquisitions across geographic locations and production lines, and several of them identify improvements in post-merger performance for mergers with certain deal characteristics [2,3]. Other research examines the pre-merger characteristics of target and acquiring banks, and identifies changes in operating efficiency, as well as the trend of mean reversion in the post-merger period [4][5][6].…”