Abstract
The article analyses shareholders returns of acquiring banks in the United Kingdom (U.K.) i.e., when U.K. banks acquire domestic banks and when U.K. banks acquire cross-border banks within the European Union (E.U.). The article includes 75% sample of the total population of bank to bank domestic acquisitions within the U.K. and cross-border acquisitions within the E.U. from 2006 until 2013. The article comes to the conclusion, by the means of event study methodology, that the shareholders returns of acquiring banks are negative and statistically insignificant (–2.076%) when they acquire cross-border banks. The results of U.K. banks acquiring domestic banks indicates higher and statistically significant abnormal returns of 1.628% at 5% significance level as compared to cross-border returns gained by U.K. acquiring banks. The research found an overall insignificant abnormal return of –0.448% for shareholders of the acquiring banks for the entire portfolio. It can be concluded that, on average, shareholders of the acquiring banks experience negative abnormal returns and acquisitions do create (short-term) abnormal returns for the acquiring banks’ shareholders around the acquisition announcement time.
Highlights
Mergers and acquisitions (M. & A.) have become a universal phenomenon, with companies acquiring targets all over the world
The results show that the average cumulative abnormal return (CAR) of U.K. banks acquiring cross-border banks within the E.U. is –2.08% and is not statistically significant
The C.A.R. results for the cross-border, domestic and the entire portfolio for each day is shown in the Table 2 and show that average abnormal return of the entire portfolio to the acquiring shareholders for (t–7), (t–1), (t0), (t+1), (t+2) and (t+7) come out to be significant at 5% for (t-7) and 1% for all others
Summary
Mergers and acquisitions (M. & A.) have become a universal phenomenon, with companies acquiring targets all over the world. This research empirically examines the effect of U.K. banks acquiring domestic banks and cross-border banks within the E.U. from 2006 to 2013. The study tries to answer whether there has been a wealth creating or wealth reducing result for the shareholders of acquiring U.K. banks and if there exists a difference in the abnormal return created by U.K. banks in the acquisition of domestic or cross-border banks of the E.U. The empirical tests of this study are based on event study methodology. The results of U.K. banks acquiring domestic banks indicate higher abnormal returns as compared to U.K. banks acquiring cross-border banks, and seem to be positive for most of the pre-bid and post-bid period.
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