Working Paper: CEPR ID: DP5204
Authors: Jos Manuel Campa; Ignacio Hernando
Abstract: This paper looks at the performance record of M&As that took place in the European Union financial industry in the period 1998-2002. First, the paper reports evidence on shareholder returns from the merger. Merger announcements implied positive excess returns to the shareholders of the target company around the date of the announcement, with a slight positive excess-return on the 3-months period prior to announcement. Returns to shareholders of the acquiring firms were essentially zero around announcement. One year after the announcement, excess returns were not significantly different from zero for both targets and acquirers. The paper also provides evidence on changes in the operating performance for the subsample of merges involving banks. M&As usually involved targets with lower operating performance than the average in their sector. The transaction resulted in significant improvements in the target banks performance beginning on average two years after the transaction was completed. Return on equity of the target companies increased by an average of 7%, and these firms also experience efficiency improvements.
Keywords: banking; European integration; mergers and acquisitions
JEL Codes: G21; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Merger announcements (G34) | Positive excess returns for shareholders of target companies (G34) |
| Merger announcements (G34) | Shareholder sentiment and stock value for targets (G34) |
| Merger announcements (G34) | Zero returns for acquiring firms (G34) |
| One year post-announcement (E60) | Excess returns for both targets and acquirers not significantly different from zero (G34) |
| M&A activity (G34) | Improvements in return on equity (ROE) for target banks (G21) |
| Initial excess returns (G12) | Future performance of target banks (G21) |