A New Application of Sustainable Growth: A Multi‐Dimensional Framework for Evaluating the Long Run Performance of Bank Mergers

Gerard T. Olson · Michael S. Pagano

50 citations0/0 files storedJournal of Business Finance &amp Accounting

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Corporate Finance and Governance Financial Markets and Investment Strategies Banking stability, regulation, efficiency

Abstract

Abstract: We study the mergers of US publicly traded bank holding companies during 1987–2000 and find that the acquiring firm's sustainable growth rate is an important determinant of the cross‐sectional variation in the merged entity's long‐term operating and stock performance. The most economically significant determinants of the merged bank's abnormal stock return performance are the acquiring bank's estimated sustainable growth rate prior to the acquisition, as well as post‐acquisition changes in this growth rate, and the bank's dividend payout ratio. Our findings are robust even after controlling for several potentially confounding factors.

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References

2012The Econometrics of Financial Markets 1996The Conditional CAPM and the Cross-Section of Expected Returns 2004Default Risk in Equity Returns 1999Improved Methods for Tests of Long‐Run Abnormal Stock Returns 1991The Variation of Economic Risk Premiums 1990Does Corporate Performance Improve After Mergers?1995Inside the Black Box: The Credit Channel of Monetary Policy Transmission 1986Valuation effects of security offerings and the issuance process

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