U.S. bank M&As in the post-Dodd–Frank Act era: Do they create value?

Abstract

The Dodd-Frank Act has produced a new wave of bank M&As. This consolidation trend is mainly driven by mergers of small banks, since small banks feel the need to merge in order to absorb the compliance costs of the new regulation. We document that the $10 billion asset-size threshold has become the ceiling of the optimal scale for bank combinations, given that banks below this $10 billion mark avoid several regulatory hurdles imposed by the Dodd-Frank Act. Results for these "less than $10 billion mergers" suggest significant value creation for both firms' shareholders: Bidders experience large anticipated wealth gains during the passage of the legislation since the market had ex-ante identified these bids. Consequently, at the deal announcement date, bidders experience insignificant returns, targets experience large abnormal returns and the combined abnormal returns are statistically positive. Finally, bidders experience positive abnormal returns at the deal completion date. On the contrary, results for larger bank mergers indicate a redistribution of wealth from the bidder to the target firm.

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

“…Goddard et al (2012) find bank M&As in Latin American countries do not generate value for shareholders in the period 1998 to 2010. These results are also consistent with those reported by Leledakis and Pyrgiotakis (2019) for US banks between 1990 and 2014.…”

“…We use two event windows: the announcement day [0,0] and two days around the announcement day [-1,1]. We use the shortest event windows to avoid capturing effects generated by other types of events (Balaban & Constantinou, 2006;Goddard et al, 2012;Leledakis & Pyrgiotakis, 2019).…”

The market reaction to syndicated loan announcements before and during the COVID-19 pandemic and the role of corporate governance

“…Thus, an endogenous relationship may exist between the pandemic and the characteristics of borrowers, which may result in sample self-selection bias. Following relevant literature ( Leledakis and Pyrgiotakis, 2020 ; Chintrakarn et al, 2021 ), we address this issue using propensity score matching (PSM). The PSM method allows us to match syndicated loans announced by firms during the COVID-19 pandemic (treated group) with loans announced by firms before the pandemic (controlled group) with otherwise similar characteristics, and then compare the CARs between the two groups.…”

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

“…We studied the implications of M&A announcements on banks in Brazil, Chile, Colombia, Mexico, andPeru between 2000 and2019. We analyze the effects of these announcements on the mean and variance of returns from the acquirer, target, and rival stocks. For this purpose, we use a GARCH event study, which allows us to estimate the cumulative abnormal return (CAR) and the event-induced variance (EIV).…”