Good and Bad Bank Takeovers

Abstract

On average bank takeovers yield little improvements in performance. We identify two sub-groups of deals with distinctive characteristics and clear implications for ex post performance. Takeovers where the target is bought by a much more efficient bank result in improved profitability; on the other hand for banks acquired by institutions with an entrenched management there is a decrease in profitability. The coexistence of both profit and non-profit maximizing deals explains the average results and underlines the importance of governance issues in determining takeovers.