Short and long-term performance analysis of banks Ms&As in Europe

Abstract

Based on a sample of 152 European banks Ms&As deals during the period 1996-2010, we probe into the short-term reaction of stock prices around the Ms&As announcement day by calculating abnormal returns for acquirers and targets. We also analyze the long-term value creation of combined entities by calculating buy-and-hold returns over two years subsequent to Ms&As. We find stock price erosions in the post-event 10-day period for the overall sample of acquirers. This finding is particularly evident in the case of low profitability bidder firms. We also detect a significantly positive stock price reaction of target bank shares for the 3-day event window around the Ms&As announcement day. This major finding remains unquestionable, throughout domestic and cross-border deals and irrespective of prior profitability of target banks