Working Paper: NBER ID: w23469
Authors: Ross Levine; Chen Lin; Zigan Wang
Abstract: Does the pre-deal geographic overlap of the subsidiaries and branches of two banks affect the probability that they merge and post-merger value creation and synergies? We compile comprehensive information on U.S. bank acquisitions from 1986 through 2014, construct several measures of network overlap, and design and implement a new identification strategy. We find that greater pre-deal network overlap (1) increases the likelihood that two banks merge, (2) boosts the cumulative abnormal returns of the acquirer, target, and combined banks, and (3) is associated with larger labor cost reductions, managerial turnover, loan quality improvements, and revenue enhancements at target banks.
Keywords: bank mergers; network overlap; cumulative abnormal returns; postmerger performance; geographic overlap
JEL Codes: G21; G28; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater predeal network overlap (D85) | likelihood of a merger (G34) |
| greater predeal network overlap (D85) | cumulative abnormal returns (CARs) of acquirer (G34) |
| greater predeal network overlap (D85) | cumulative abnormal returns (CARs) of target (C22) |
| greater predeal network overlap (D85) | cumulative abnormal returns (CARs) of combined banks (G21) |
| greater predeal network overlap (D85) | labor cost reductions at target banks postmerger (G34) |
| greater predeal network overlap (D85) | increased managerial turnover at target banks postmerger (G34) |
| greater predeal network overlap (D85) | improved loan quality at target banks postmerger (G21) |
| greater predeal network overlap (D85) | enhanced revenue generation at target banks postmerger (G34) |