The Valuation Effect of US Bank Mergers over the Financial Crisis Period

//The Valuation Effect of US Bank Mergers over the Financial Crisis Period
The Valuation Effect of US Bank Mergers over the Financial Crisis Period2016-11-10T15:00:25+00:00

Koetter et al. (2007) explained that there is a basic intention behind the merger and acquisition process in each industry during the crises situations. In the public sectors, banks are motivated for the acquisition or the merger activity due to different reasons. The most important reason for the merger and acquisition is to prevent the smaller banks from the failures, as well as to avoid the costly bailout packages for smaller banks which are unable to survive in the area of crises. Nevertheless, the acquisition of small banks by the larger banks would be beneficial as it would be less costly as compared to the costly bailout packages and bank failure.
Mitchell and Mulherin (1996) tried to find out the reasons for why mergers occur. They have worked quite a lot and a recent literature on the nature and type of mergers has emerged. They found empirically two features that are relevant to the occurrence of the mergers. According to their empirical findings, mergers have the tendency to occur in the waves and in the merger waves; these mergers are broadly clustertified by the industry. If we consider these factors, it could be believed that mergers occur mainly due to the unexpected change in the scenario of the industry and the industry structure would have been changed in case when the mergers occur. So, it is very challenging for the firms and organizations to take into consideration the industrial environment of the firm and thus to correctly identify the disturbance and shocks related to the industry and the proper documentation of the industry related variances.
Andrade and Stafford (1999) also discussed the clustering process of firms during acquisition and mergers. They found out that mergers occur in the waves in the industry and that merger waves are highly clustered in the industry. They also studied the firms of the year from 1970 to the firms of 1994 and studied the pattern of the mergers and acquisition. According to their results, they found out that these mergers occur in relatively identifiable waves but these waves are not the same in the different industries or even these waves are not alike across different decades. In fact, the industry averages varies tremendously in the context of the mergers. They defined a simple way to check the hypothesis and found out the results. They compared the different industries for the merger activity and this was also for different time periods. They reported the empirical findings by ranking the industries over the decades and found the correlation between these industries which have gone through merger activity. From the empirical findings of Andrade and Stafford (1999), it was revealed that the correlation between the averages of the acquired industries is almost negligible. This is so because the industries which have gone through the merger process would not necessarily repeat the merger activity over the time.
Other researchers have also studied the pattern of the mergers, like how they occur and what are the reasons for the mergers to occur. Different researchers have examined the same results that mergers occur due to the variation in the averages of the industry. Steven (2000) found a general pattern for mergers to be occurred. He obtained empirical finding from research that most of the mergers and acquisitions result from the regulatory shocks in the industry which affect the firms and make them vulnerable to the option of mergers. Along with this regulatory reason, Steven (2000) discussed the technological factor as the reason for the firms to go for mergers. Technology affects a firm’s macro environment and thus affects the income and cause income variability across different time period. This income variability will leads towards the firm’s option to go for the mergers and acquisition.