The Effect of Acquisitions on the Performance of European Credit Entities During the 90s: Panel Data Analysis

Abstract

The aim of our research is to study the effect of financial acquisitions over European Union credit entities performance overcoming three limitations found in previous studies: most studies have been done for the United States market (characterised by higher regulatory restrictions for banking expansion both geographically and in products); they have not considered jointly acquisitions of other banks and acquisitions of other non-banking financial entities; and they have suffered from statistical limitations. Therefore, our study becomes the first one that analyses bank performance derived from both the acquisition of another bank and the acquisition of other non-banking financial entities, using panel data methodology during the period 1992-2000 for a sample of 2196 banks, where 240 acquisitions can be observed. The results show an increase in the acquirers' long-term profitability. In both acquisitions, when the target is a credit entity and when it is a non-banking financial entity, an increase in the acquirer's performance can be observed. Domestic acquisitions and those developed inside the European Union are more profitable than the ones taken outside EU. Lastly, the acquirer's country legal system does not affect the performance obtained, which continues being positive in the long run.