Wealth effects of Canadian financial services takeovers: consolidation, diversification and foreign evidence

Abstract

This study analyses the wealth effects related to Merger and Acquisition (M&A) announcements in the Canadian financial services industry. This study more broadly portrays the Canadian M&A experience in examining a sample of 161 M&A deals from 1997 to 2000. Overall, M&A is related to significant and negative abnormal returns. Results show that the market neither rewards nor punishes consolidation M&A with nonsignificant abnormal returns. Diversification through M&A is related to a loss in shareholder wealth. The exception is for bank and investment acquisitions. The market punishes foreign M&A with negative abnormal returns, consistent with the literature on high-information costs and regulations. Moreover, acquisitions paid with stock and privately owned targets are negatively related to wealth. The findings imply that financial industry restructuring through M&A in response to deregulation does not create wealth gains.