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The Determinants of Bank Mergers: A Revealed Preference Analysis

By  |  July 1, 2014

Posted by Social Science Research Network

The Determinants of Bank Mergers: A Revealed Preference Analysis – Oktay Akkus (Bates White), J. Anthony Cookson (University of Colorado at Boulder – Leeds School of Business) and Ali Hortacsu (University of Chicago – Department of Economics ; National Bureau of Economic Research)

ABSTRACT: We provide new estimates of merger value creation by exploiting revealed preferences of merging banks within a matching market framework. In our analysis of bank mergers, we find that merger value arises from cost efficiencies in overlapping markets, relaxing of regulation, and network effects exhibited by the acquirer-target matching. In contrast, we find that merger value creation is unrelated to acquirer overvaluation and performance, suggesting that mergers in our sample are not motivated by free cash flow. Consistent with this interpretation, we estimate that only six percent of mergers destroy value, reducing overall merger value by less than one percent.