The effect of bank acquisition on stockholder wealth

The purpose of this study is to investigate whether trends in banking mergers between January 1994 and October 1995 are different from previous periods. Specifically, the study focused on greatly increased acquisition prices and interstate consolidations. Abnormal returns and cumulative abnormal returns fora sample of 30 mergers were determined for each situation. The results of the study showed negative effects for shareholders of acquiring banks around the announcement period. Medium-to-small (under $1 billion) acquisitions caused insignificant negative abnormal returns, but large acquisitions, caused significant negative abnormal returns. At the same time, shareholders in acquired banks of both sizes earned significant positive abnormal returns. The analysis of interstate mergers showed similar results. The analysis documented significant positive abnormal returns for target banks and insignificant negative abnormal returns for acquiring banks during the announcement.