Analysis of cross‐border and domestic mega‐M&As of European commercial banks

Abstract

Purpose

This paper aims to examine value gains to acquirers in large commercial bank mega‐mergers (with transaction values over £1 billion) that occurred in the European Union during the period 1997‐2007, distinguishing between domestic and cross‐border transactions.

Design/methodology/approach

Based on a sample of 62 bank mega‐mergers, an event study methodology is employed using a market model to determine cumulative standardised abnormal returns (CSAR) to acquiring banks around the announcement date of merger deals. This is followed by cross‐sectional regression to determine specific characteristics driving acquirers' CSAR.

Findings

Cross‐border bank mergers have been more frequent in recent years, reflecting a growing trend of banking sector consolidation in the EU. However, such mergers are found to yield significant negative announcement period acquirer returns, while domestic deals have marginally negative but insignificant returns. The operational cost efficiency and capital strength of acquiring banks are found to be significant in influencing excess returns.

Research limitations/implications

Constraints on data availability limited the scope for sensitivity analysis and incorporation of target characteristics in the cross‐sectional regression of drivers affecting acquirers' CSAR. Further research is aimed to address these issues.

Practical implications

Event study and regression results indicate that potential downside risks are judged by market participants to outweigh the benefits from cross‐border M&As in the retail banking market despite evidence of increased financial sector consolidation in the EU.

Originality/value

The study reflects the recent period of increased cross‐border banking consolidation in the EU and reveals findings that differ in some respects from previous studies on EU bank M&As.

Citation

Nnadi, M. and Tanna, S. (2013), "Analysis of cross‐border and domestic mega‐M&As of European commercial banks", Managerial Finance, Vol. 39 No. 9, pp. 848-862. https://doi.org/10.1108/MF-01-2010-0006