It's the Market Power, Stupid! Stock Return Patterns in International Bank M&A

Posted by D. Daniel Sokol

Yassin Hankir, Frankfurt School of Finance & Management - FIPEMA, Christian Rauch, E-Finance Lab, and Marc P. Umber, Frankfurt School of Finance & Management, Goethe University Frankfurt - Department of Finance explain It's the Market Power, Stupid! Stock Return Patterns in International Bank M&A.

ABSTRACT: This paper analyzes capital market reactions to international bank M&A. We investigate combined stock return patterns of targets, bidders, and their peers upon takeover announcement, and closing or withdrawal. We distinguish five common M&A hypotheses and relate characteristic and mutually exclusive abnormal stock return patterns to each hypothesis. We find that investors believe in gains through the exploitation of market power by the post-merger entity. In a multinomial logistic model we show that patterns related to market power significantly concur with large relative target size, intra-industry mergers, and increasing market concentration, suggesting a substantial lessening of competition through M&A.