New evidence on the economic motives for bank mergers

Abstract This study uses a comprehensive sample of mergers and acquisitions to reexamine the economic motives for bank mergers. We find that banks with good growth opportunities, high profitability, and high asset utilization rates use mergers to diversify geography and business activity. Banks with low profitability and poor asset utilization rates use focusing mergers to rationalize operations. We also analyze the sources of value creation. We find that local and focusing mergers and distant and diversifying mergers both create significantly positive value. Moreover, any differences in returns between focusing and diversifying deals are driven by firm, industry, and deal characteristics.