Journal article
Motivations for bank mergers and acquisitions: Enhancing the deposit insurance put option versus earnings diversification
Journal of money, credit and banking, Vol.27(3), pp.777-788
08/01/1995
DOI: 10.2307/2077749
Abstract
The pace of mergers and acquisitions among US commercial banks has increased dramatically over the past several years. Of the many factors leading to this increase in merger activity, the weakening of regulatory restrictions against interstate banking was a significant factor. With the weakening of these geographic restrictions, mergers and acquisitions were a means for banks to penetrate new markets, realize potential economies, and acquire financial power and prestige associated with larger size. The prices bid to acquire target banks in the early to mid-1980's is studied. In particular, two contrasting hypotheses on the pricing of risk considerations in these mergers are examined. The earnings diversification hypothesis holds that banks would bid more for merger partners that offered the potential for cash flow enhancements as a result of earnings diversification, whereas the deposit insurance put-option hypothesis holds that acquirers would bid more for targets that offered opportunities to increase risk and/or to become too big or important to fail. The diversification hypothesis is supported by the empirical evidence.
Details
- Title: Subtitle
- Motivations for bank mergers and acquisitions: Enhancing the deposit insurance put option versus earnings diversification
- Creators
- George BenstonWilliam HunterLarry Wall
- Resource Type
- Journal article
- Publication Details
- Journal of money, credit and banking, Vol.27(3), pp.777-788
- DOI
- 10.2307/2077749
- ISSN
- 0022-2879
- eISSN
- 1538-4616
- Publisher
- Ohio State University Press; COLUMBUS
- Language
- English
- Date published
- 08/01/1995
- Academic Unit
- Finance
- Record Identifier
- 9984963237602771
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