Fusing futures: Financial institutions’ stock price response to fintech acquisitions

Abstract

Traditional financial institutions are increasingly engaging in mergers and acquisitions (’M&As’) with financial technology (’fintech’) firms. Utilizing signaling theory, we argue that investors perceive an acquirer’s first fintech deal as a signal of commitment to a digitalized future. Our findings, based on 1681 fintech and nonfintech M&A deals, reveal that acquirers exhibit a significantly higher abnormal return for fintech deals than for nonfintech deals. This difference stems primarily from an acquirer’s first fintech deal. We rule out several alternative explanations, such as CEOs’ communication efforts to promote these deals. Consequently, a signaling effect seems likely.