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The risk and financial performance o...

Toledo, Moshe.

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The risk and financial performance of banks post mergers and acquisitions.

Record Type:	Electronic resources : Monograph/item
Title/Author:	The risk and financial performance of banks post mergers and acquisitions./
Author:	Toledo, Moshe.
Description:	157 p.
Notes:	Source: Dissertation Abstracts International, Volume: 65-03, Section: A, page: 1015.
Contained By:	Dissertation Abstracts International65-03A.
Subject:	Business Administration, General. -
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=3125945

The risk and financial performance of banks post mergers and acquisitions.
Toledo, Moshe.

The risk and financial performance of banks post mergers and acquisitions. - 157 p.

Source: Dissertation Abstracts International, Volume: 65-03, Section: A, page: 1015.

Thesis (D.B.A.)--Boston University, 2004.

The United States banking industry has seen a constant trend toward consolidation since the early 1980s, and experienced a strong convergence tendency during the 1990s. Such a merger wave has the potential to fundamentally restructure the banking industry with significant implications for competition and the economic performance of the industry. Considerable research on bank mergers and acquisitions (M&A) has been carried out to identify the reasons and motives for consolidation. The suggested motivational hypotheses are economies of scale, economies of scope, managerial X-efficiencies, tax, hubris, synergy, growth, information and signaling, risk diversification, and to become "too big or too important to fail". Reasons for the momentous merger wave of the 1990s are, among others, emergence of new technologies, bank and thrift failures in the 1980s (risk awareness), and the legal and regulatory changes that were implemented gradually. While recognizing the importance of safety and soundness to the banking industry, less attention has been devoted to the risk issue associated with bank M&A. This study explores and analyzes the market perception of risk related to banks M&A by implementing market microstructure theory and bid-ask spread methodology to the 2,510 consolidation announcements and completed mergers during the 1990s. I have documented, examined, and compared changes in the adverse selection component of the acquiring banks bid-ask spreads, in the days surrounding the merger announcements. The NASDAQ Financial-100 daily bid-ask spread Index (2020 trading days) was calculated and used to rule out industry wide effects during the tested period. The results reveal highly statistically significant narrower spreads for NASDAQ acquiring banks following merger and acquisition announcements. Intrastate mergers, large bank consolidations, and acquisitions with low price to target banks' equity ratio experienced greater decline in bid-ask spreads and are perceived as less risky mergers. Risk based capital ratios of the acquiring banks have not exhibited a significant relation to changes in spreads. The results are steady and significant through all three measures of bid-ask spreads I examine in this study: proportionate (percent), effective (dollar), and adjusted-by-index (excess) bid-ask spreads. These findings are consistent with the hypothesis that such mergers reduce the perceived risk associated with the merging firms. Study results have important implications for many parties involved with the banking industry. In particular, it is of value to regulators and standard setters when examining proposed mergers, reviewing market deregulations and considering new Value-at-Risk rules, as well as to investors and other financial market participants who are considering the investment in the proposed merged institutions.Subjects--Topical Terms:

1017457
Business Administration, General.

The risk and financial performance of banks post mergers and acquisitions.
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245 1 4 $a The risk and financial performance of banks post mergers and acquisitions.
300 $a 157 p.
500 $a Source: Dissertation Abstracts International, Volume: 65-03, Section: A, page: 1015.
500 $a Major Professor: Moshe Hagigi.
502 $a Thesis (D.B.A.)--Boston University, 2004.
520 $a The United States banking industry has seen a constant trend toward consolidation since the early 1980s, and experienced a strong convergence tendency during the 1990s. Such a merger wave has the potential to fundamentally restructure the banking industry with significant implications for competition and the economic performance of the industry. Considerable research on bank mergers and acquisitions (M&A) has been carried out to identify the reasons and motives for consolidation. The suggested motivational hypotheses are economies of scale, economies of scope, managerial X-efficiencies, tax, hubris, synergy, growth, information and signaling, risk diversification, and to become "too big or too important to fail". Reasons for the momentous merger wave of the 1990s are, among others, emergence of new technologies, bank and thrift failures in the 1980s (risk awareness), and the legal and regulatory changes that were implemented gradually. While recognizing the importance of safety and soundness to the banking industry, less attention has been devoted to the risk issue associated with bank M&A. This study explores and analyzes the market perception of risk related to banks M&A by implementing market microstructure theory and bid-ask spread methodology to the 2,510 consolidation announcements and completed mergers during the 1990s. I have documented, examined, and compared changes in the adverse selection component of the acquiring banks bid-ask spreads, in the days surrounding the merger announcements. The NASDAQ Financial-100 daily bid-ask spread Index (2020 trading days) was calculated and used to rule out industry wide effects during the tested period. The results reveal highly statistically significant narrower spreads for NASDAQ acquiring banks following merger and acquisition announcements. Intrastate mergers, large bank consolidations, and acquisitions with low price to target banks' equity ratio experienced greater decline in bid-ask spreads and are perceived as less risky mergers. Risk based capital ratios of the acquiring banks have not exhibited a significant relation to changes in spreads. The results are steady and significant through all three measures of bid-ask spreads I examine in this study: proportionate (percent), effective (dollar), and adjusted-by-index (excess) bid-ask spreads. These findings are consistent with the hypothesis that such mergers reduce the perceived risk associated with the merging firms. Study results have important implications for many parties involved with the banking industry. In particular, it is of value to regulators and standard setters when examining proposed mergers, reviewing market deregulations and considering new Value-at-Risk rules, as well as to investors and other financial market participants who are considering the investment in the proposed merged institutions.
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