Revised Draft: January 25, 2000 INCENTIVES FOR BANKING MEGAMERGERS: WHAT MOTIVES MIGHT REGULATORS INFER FROM EVENT-STUDY EVIDENCE?

Methodologically, this paper frames the opportunity cost of any merger as the value of the alternative deals it precludes or defers. This challenges the standard eventstudy hypothesis that stock markets benchmark the value of a merger deal by the profits the partners would have earned in stand-alone activity. Substantively, the paper finds that megamergers in banking show two size-related exceptions to the prototypical result that acquirer stock value tends to be unaffected or to fall when a merger is announced. Giant U.S. banking organizations gain value from becoming more gigantic and gain additional value when they absorb an in-state competitor. JEL Classification Codes: G14, G21, G34