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INTERSTATE BANKING DEREGULATION AND THE CHANGING NATURE OF BANK MERGERS

Authors


  • We are grateful for comments and suggestions made by Gayle DeLong (the referee), William T. Moore (the editor), Linda Allen, Helen Bowers, Robert Bruner, Robert DeYoung, Laura Field, Donald Fraser, Larry Goldberg, Anna Martin, Jeffrey Mercer, Harold Mulherin, Breck Robinson, Robert Schweitzer, Adrian Tschoegl, and seminar participants at the 2002 Financial Management Association and the 2002 Eastern Finance Association meetings. Any errors or omissions remain our own.

Abstract

We examine a sample of 443 bank mergers between publicly traded banks announced during the 1990s to investigate empirically the role of full interstate banking deregulation. The pre-deregulation 1990s are characterized by value creation, with mergers involving a high degree of branch overlap experiencing significant announcement gains. Bank mergers in the post-deregulation 1990s, however, fail to create value, and mergers with a high degree of branch overlap actually experience significant losses. Consistent with prior research, these valuation consequences are magnified for large bank mergers in the 1990s. Overall, our results are consistent with the broader literature on corporate control, suggesting that an economic shock can materially alter industry structure and the economic rationale for the efficient reallocation of assets through merger activity.

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