Takeover activity among financial mutuals: An analysis of target characteristics

Abstract

This paper presents an empirical investigation of the merger process among mutuals, using a large pooled cross section/time series sample of UK building societies between 1981 and 1993.The financial services industry is probably unique in having a substantial mutual sector coexisting with, and competing against, joint-stock firms. However, given the severely attenuated system of ownership claims in the financial mutual, it has been widely predicted that this form will exhibit strong behavioural differences from the stock sector. It is surprising, therefore, that despite the important governance role accorded to mergers in the corporate literature, the merger process among financial mutuals has been almost totally ignored. This paper explores the mutual merger process via an examination of the targets' characteristics. It finds little support for the ‘natural selection’ view of mutual acquisitions, but it does reveal the importance of the regulatory process. Above all, the results show a surprising similarity to those from studies of the merger process in joint-stock firms.