Characteristics of acquired firms: the case of the banking industry

Abstract

Purpose

The purpose of the paper is twofold: to determine firm characteristics that explain mergers in the banking industry and to predict the likelihood of a merger.

Design/methodology/approach

A logit model is used to estimate coefficients. The paper also tests the effect of the Financial Services Modernization Act on market structure and uses a national sample from 1997 to 2003.

Findings

Results indicate that profitability (PROF), size (SIZE), asset management (ASSETMGT), and solvency (SOLV) are factors in explaining mergers in the full sample model. Poor ASSETMGT, large target banks, low PROF, and solvent banks represent merged firms in the full sample model. The results also indicate that loan activity is not a factor in explaining mergers. It appears that banks merged before the Financial Services Modernization Act (Pre‐1999 Merger Model) are characterized by poor ASSETMGT, and are solvent. In contrast, the only factor explaining mergers after the Financial Services Modernization Act (Post‐1999 Merger Model) was PROF.

Originality/value

The paper shows that the results for the full sample model and the sub‐sample models are the same except for PROF. This suggests that acquiring banks seek to provide better management, technology, and access to better markets than the smaller merged banks.

Citation

Meisel, S.I. (2007), "Characteristics of acquired firms: the case of the banking industry", Journal of Financial Regulation and Compliance, Vol. 15 No. 4, pp. 409-422. https://doi.org/10.1108/13581980710835263