Bank Integration and the Market for Corporate Control: Evidence from Cross-State Acquisitions

Abstract

How does bank integration affect the market for corporate control for nonfinancial firms? We provide causal evidence that interstate bank deregulation affects acquisitions mainly through reducing the information asymmetry between acquirers and targets, instead of increased credit supply. After deregulation, the likelihood of cross-state acquisitions significantly increases, and more so if the target borrows from an out-of-state bank, the target’s bank is acquired by an out-of-state bank, the target’s state has reciprocal interstate bank deregulation with the acquirer’s state, or the target is opaque. The reduced information asymmetry increases announcement returns for acquirers of out-of-state (particularly private) targets after deregulation.