Models for measuring and predicting value creation during merger and acquisitions: a study of bank industry

Guo-yi Chen

Chongqing three gorges university, Wanzhou City, Chongqing, China, 404120

This paper employs event study methodology with a 36-day event window to assess the value effects of the US bank mergers occurring between 1994 and 2003. A 38-transaction sample is chosen from the top fifty US bank mergers (according to the assets of targets) occurred during the period from 1994 to 2003. Through analysis, result indicates that the average cumulative abnormal return of the bidders in the chosen sample is negative (-0.99%), while the targets and combined firms are both positive (15.07% and 2.57% respectively). Significance testing also verified that the negative bidder return is confirmed to be insignificant, whilst the positive return of the target and combined firm are both significant. Combined together, It indicates that the 3,517 US bank mergers occurred between 1994 and 2003 create insignificantly negative value for bidders, whilst benefit the target and the integrated banks with significant positive gains.