Partial Anticipation and the Gains to Bank Merger Targets

Posted: 5 Aug 2004

See all articles by Aigbe Akhigbe

Aigbe Akhigbe

University of Akron - Department of Finance

Jeff Madura

Florida Atlantic University - College of Business

Ann Marie Whyte

University of Central Florida

Abstract

We design an empirical model to determine the prior probability of a bank becoming an acquisition target. We find that the probability of a bank being acquired is higher for banks that are larger, have a lower return on assets, a higher capital level, more non-performing loans, higher run-up in price, a lower market-to-book multiple, a higher core deposit ratio, and a higher loan concentration. The probability is also higher since the passage of the Riegle-Neal Act of 1994. We also examine whether the full gains to target banks are conditioned on the probability of being acquired. We find that the gains to target banks in the one-year pre-announcement period are more pronounced for banks that exhibit high-logit probability characteristics. The gains are large and significant in the short-term announcement period, but not significantly related to the logit probabilities among banks. Our results suggest that the share price adjustment for the characteristics that make some banks more appealing targets appears to be completed in the pre-announcement period. Thus, studies that estimate the gains to targets using only the announcement period are underestimating the gains.

Keywords: Bank acquisitions, partial anticipation, merger gains, probability of acquisition

Suggested Citation

Akhigbe, Aigbe and Madura, Jeff and Whyte, Ann Marie, Partial Anticipation and the Gains to Bank Merger Targets. Available at SSRN: https://ssrn.com/abstract=572583

Aigbe Akhigbe (Contact Author)

University of Akron - Department of Finance ( email )

Akron, OH 44325-4803
United States
330-972-6883 (Phone)

Jeff Madura

Florida Atlantic University - College of Business ( email )

University Tower
220 SE 2 Avenue
Fort Lauderdale, FL 33301
United States
(954)762-5632 (Phone)
(954)762-5245 (Fax)

Ann Marie Whyte

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States

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