Abstract
The consolidation process in the European banking system has been particularly strong in the last two decades. This paper investigates the long-term impact of M&As in the profitability and efficiency of banks. Using a sample of 118 within-border deals in Europe over the period 1996-2010, we highlight features of performance by the use of standard profitability and loan quality ratios. Our results show that in the post-merger period profitability slightly increases after the third year of operation even though initially M&A activity influences negatively our employed measures. Evidence from efficiency ratios is mixed. Some empirical evidence allows us to detect expansionary policies by banking institutions two to three years after the M&A onwards, but results have no definite trend. Over longer time horizons it is clear that banks’ loan loss provisions against non-performing loans plummet in a finding related to information sharing in domestic deals. When testing the stock price behavior of merged institutions our empirical evidence does not allow us to infer that there exist opportunities to reap profits throughout the 2-year post-merger horizon.
Highlights
The last two decades have been marked by an unprecedented consolidation in the banking sector in Europe and the rest of the world
Tuch and O’Sullivan (2007), in a review paper, corroborate the consensus of negative returns on the post-merger period. In this context and with the aim to examine whether efficiency gains and stockholder value enhancement opportunities through mergers and acquisitions (M&As) are still present in the European region, we embark on a research to capture the characteristics and the long-term performance effects of domestic banks M&As using an up-to-date dataset
We find that buy-and-hold returns (BHARs) are negative for all time horizons
Summary
The last two decades have been marked by an unprecedented consolidation in the banking sector in Europe and the rest of the world. The adoption of the common currency is unanimously believed to be the driving force behind M&A activity especially during that period This consolidation process has decisively changed the structure of the banking sector in Europe even though there still exists heterogeneity in terms of concentration in the greater European region. Tuch and O’Sullivan (2007), in a review paper, corroborate the consensus of negative returns on the post-merger period In this context and with the aim to examine whether efficiency gains and stockholder value enhancement opportunities through M&As are still present in the European region, we embark on a research to capture the characteristics and the long-term performance effects of domestic banks M&As using an up-to-date dataset.
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