A Multiple-metric Study of the Returns to Shareholders: the Case of Bank Holding Company Mergers

This research is an event study that deals with shareholder reaction to the announcement of the merger of two bank holding companies (BHC). The work spans the time period 1980-1987. The period was chosen because of its correspondence with significant deregulation of the industry and significant swings in economic activity. The changing economic activity during the period allowed the study of the deregulation effects in different economic climates. The study employs three single-index and two double-index econometric models. An index of bank stocks was also developed to facilitate the analysis. The results of this study provide additional evidence on 1) the significance of bank merger announcements, 2) the comparative announcement effects across exchanges, 3) a comparison of acquiring versus acquired effects, and 4) evidence on the consequences of model choice. It is found that positive abnormal returns accrue to the shareholders of the acquired firm. The abnormal returns to the shareholders of the acquiring firm are either significantly negative or zero and are stock exchange dependent.