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Productivity-conditioned market reaction of US Bank acquisitions during regulation-deregulation eras

Jamal Al-Khasawneh, Naceur Essaddam (), Salah Nusair and Benito A. Sanchez ()
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Naceur Essaddam: Royal Military College of Canada
Benito A. Sanchez: Kean University

Journal of Economics and Finance, 2023, vol. 47, issue 2, No 5, 368-385

Abstract: Abstract This study investigates whether the market can detect the productivity changes in US bank acquirers during the deregulation of the 1990s and the regulation in the aftermath of the 2008 financial crisis. We find that the market reacts negatively to acquisitions that resulted in productivity decline -especially for medium acquirers- but they show no market reaction to acquisitions that resulted in productivity increase. Moreover, the market reflects the characteristics of the deals, like a target's relative size, profitability, and percentage of short-term stock financing, while it reacts to the possible changes in productivity over longer horizons. These results apply to the deregulation and regulation periods but with longer delays in the market reactions to productivity changes and more persistence in the characteristics of deals across all event windows in the deregulation period. The practical implication for acquirer banks’ is that, besides analyzing acquisition characteristics (such as the target’s profitability, relative size, and leverage), its management has to monitor the bank’s productivity and take actions on any productivity decline.

Keywords: Malmquist productivity index; US banking sector; Event study; Data Envelopment Analysis (DEA) (search for similar items in EconPapers)
JEL-codes: C14 C24 D21 D61 G2 G21 N25 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s12197-022-09610-x

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