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Bondholders’ wealth effects in domestic and cross-border bank mergers


Ongena, Steven; Penas, María Fabiana (2009). Bondholders’ wealth effects in domestic and cross-border bank mergers. Journal of Financial Stability, 5(3):256-271.

Abstract

The recent credit crisis and the increased internationalization of the European banks have given the debate about the role of national regulators a renewed urgency. We therefore investigate the determinants of bondholders’ abnormal returns for both domestic and cross-border bank merger announcements that involve European acquirers for the period 1998–2002. We find that bondholders’ abnormal returns are higher for Domestic Mergers than cross-border mergers, in direct contrast to evidence from equity prices where no difference is found. Further investigations in which we control for the changes in market power for example suggest this result may be indicative of investors perceiving Domestic Mergers as increasing the probability of a government bailout in case of distress. Banks’ bondholders also experience higher abnormal returns when the country of the partner bank has stricter rules in relation to forbearance of prudential regulations than the own country, and when functional diversification between lending and fee/trading activities increases.

Abstract

The recent credit crisis and the increased internationalization of the European banks have given the debate about the role of national regulators a renewed urgency. We therefore investigate the determinants of bondholders’ abnormal returns for both domestic and cross-border bank merger announcements that involve European acquirers for the period 1998–2002. We find that bondholders’ abnormal returns are higher for Domestic Mergers than cross-border mergers, in direct contrast to evidence from equity prices where no difference is found. Further investigations in which we control for the changes in market power for example suggest this result may be indicative of investors perceiving Domestic Mergers as increasing the probability of a government bailout in case of distress. Banks’ bondholders also experience higher abnormal returns when the country of the partner bank has stricter rules in relation to forbearance of prudential regulations than the own country, and when functional diversification between lending and fee/trading activities increases.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Finance
Social Sciences & Humanities > General Economics, Econometrics and Finance
Language:English
Date:September 2009
Deposited On:24 Nov 2020 14:44
Last Modified:25 Nov 2020 21:01
Publisher:Elsevier
ISSN:1572-3089
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jfs.2008.08.003
Official URL:http://www.sciencedirect.com/science/article/pii/S1572308908000508
Other Identification Number:merlin-id:11786

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