The effect of mergers and acquisitions in the banking sector

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Research within the field of mergers and acquisitions (M&A) have gained more attention throughout the last decades due to its complex characteristics. M&A is a fascinating phenomenon that combines two firms into one, and embraces many important aspects regarding the process that is decisive for its successfulness. Prior studies have focused extensively on either the market- or the accounting-performance of acquiring firms. This study tries to bridge this gap by examining the financial performance through both market- and accounting-based measures. For this matter, this study examines only one industry, namely the banking industry. The banking industry has been analysed by numerous studies that examined the financial performance of banks through either a market measure (CAR’s), or accounting-based measures (ROA, ROE, etc.). This study examines the financial performance of US and European acquiring banks from the period 2000-2018. The results indicate that M&A activity of acquiring banks lead in fact to a value increasement, which is shown in a better market performance and a better accounting performance in the years after the merger. However, when separating between US and European banks, the results change substantially. For US banks, M&A activity leads to better financial performance, whereas European banks perform worse.
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