The Determinants of Bank Mergers: A Revealed Preference Analysis

We provide new estimates of merger value creation by exploiting revealed preferences of merging banks within a matching market framework. We find that merger value arises from cost efficiencies in overlapping markets, relaxing of regulation, and network effects exhibited by the acquirer-target matching. In our analysis of bank mergers, we find that merger value creation is unrelated to acquirer misvaluation and performance, suggesting that mergers in our sample are not motivated by manager-specific rents. Consistent with this interpretation, we estimate that only six percent of mergers destroy value, reducing overall merger value by less than one percent. ∗Bates White Economic Consulting †University of Colorado at Boulder Leeds School of Business. Corresponding author. [email protected]. ‡University of Chicago Department of Economics.