The Performance of Bank Holding Company Acquisitions: A Multivariate Analysis

Abstract

The substantial growth in acquisitions of commercial banks by registered bank holding companies has had a marked effect on the structure of commercial banking. In 1971 alone, following the 1970 amendment to the Bank Holding Company Act of 1956, deposits at affiliated commercial banks rose from less than one-fifth to more than one-half of all commercial bank deposits in the United States. The concern that the change in market structure brought about by the increasing influence of holding companies would permanently worsen the performance of the commercial banking system has resulted in a series of empirical studies attempting to measure the effects of acquisition on bank performance.' While the procedures employed varied slightly, these studies all used the same basic methodology and, not surprisingly, obtained quite consistent results: they have all basically concluded that holding company acquisitions have little effect on performance. Several aspects of the methodology employed in these studies have recently been criticized by Johnson and Meinster.2 Two such aspects were the use of univariate rather than multivariate analysis and the failure to correctly account for the postacquisition interval. This study has two goals. First, data similar to those used in earlier studies will be subjected to multivariate analysis to determine whether the use of multivariate analysis will confirm the outcome of earlier studies. We hypothesize that some performance measures used in the earlier studies are highly correlated with each other and that some measures might act differently in combination than they would if tested separately. Therefore,