We analyze the takeover premiums paid for a sample of European bank mergers between 1997 and 2007. We find that acquiring banks value profitable, high-growth, and low-risk targets. We also find that the strength of bank regulation and supervision and of deposit insurance regimes in Europe has measurable effects on takeover pricing. Stricter bank regulatory regimes and stronger deposit insurance schemes lower the takeover premiums paid by acquiring banks. This result, presumably in anticipation of higher compliance costs, is mainly driven by domestic deals. Also, we find no conclusive evidence that bidders seek to extract benefits from regulators either by paying a premium for deals in less regulated regimes or becoming too big to fail.
JEL classification: G21, G34, G28
Key words: banks, mergers, premiums, Europe
The authors thank Tom Berglund, Claudia Girardone, Iftekhar Hasan, Heinrich Liechtenstein, and Marina Martynova as well as the participants at a Bank of Spain seminar, the XVI Foro de Finanzas (Madrid) seminar, the 2009 UKEPAN Finance Conference (Leicester), and the XVIII International Tor Vergata Conference on Money, Banking, and Finance (Rome). The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
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