Did the financial crisis change investor behavior towards mergers and acquisitions announcements in the banking sector? : Europe versus the United States

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Did the Financial Crisis Change Investor Behavior

Towards Mergers and Acquisitions Announcements in

the Banking Sector? Europe versus the United States

University of Amsterdam

Faculty Economics and Business

BSc Economics & Business

Specialization Economics and Finance

Author:

M.A. Vakalopoulos

Student number:

10676198

Thesis supervisor: Dr. Jan Lemmen

Finish date:

29/06/2016

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NON-PLAGIARISM STATEMENT By submitting this thesis the author declares to have written this thesis completely by himself/herself. and not to have used sources or resources other than the ones mentioned. All sources used. quotes and citations that were literally taken from publications. or that were in close accordance with the meaning of those publications. are indicated as such. COPYRIGHT STATEMENT The author has copyright of this thesis. but also acknowledges the intellectual copyright of contributions made by the thesis supervisor. which may include important research ideas and data. Author and thesis supervisor will have made clear agreements about issues such as confidentiality. Electronic versions of the thesis are in principle available for inclusion in any EUR thesis database and repository. such as the Master Thesis Repository of the Erasmus University Rotterdam

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ABSTRACT

By analyzing abnormal returns of a sample of banks after successfully completing a domestic merger or acquisition (M&A) deal, I attempt to find distinctive features in investor behavior. Throughout years of research, significant abnormal returns due to M&As have been observed for target banks while acquiring banks realized insignificant abnormal returns in both the US and EU. The belief that an investor’s reaction to M&As have changed due to the financial crisis is not correct. An interesting aspect was that US target banks achieved a positive average abnormal return of roughly 13.4 percent while EU target banks a mere five percent.

Keywords: Bank mergers, mergers and acquisitions, abnormal returns JEL Classification System: G14, G21, G34

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Table 1: Table of literature: Overview of key studies throughout the years 10 Table 2: Overview of domestic M&A activity in the United States of America and the European Union 11 Table 3: Summary target banks involved in a domestic Merger and Acquisition deal from 2005-2014 14 Table 4: Brown & Warner test of significance of Cumulative Abnormal Adjusted Returns of target banks 15 involved with Merger and Acquisition deals from the period of 2005-2014

Table 5: Summary Acquiring involved in a domestic Merger and Acquisition deal from 2005-2014 16 Table 6: Brown & Warner test of significance of Cumulative Abnormal Adjusted Returns of acquiring 17 banks involved with Merger and Acquisition deals from the period of 2005-2014

LIST OF FIGURES

Figure 1: Average abnormal adjusted returns for target banks from a period of 10 days prior to 10 days 18 after M&A announcement

Figure 2: Average abnormal adjusted returns for acquiring banks from a period of 10 days prior to 10 20 days after M&A announcement

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CHAPTER 1 Introduction

Mergers and acquisitions (M&As) − especially when well-known companies are involved − attract a lot of attention from all over the world. Consequently, valuation effects as a result of M&A activity in the banking sector have been heavily researched throughout the years.

Previous research was very much stimulated by the significant increase of M&A activity in the United States of America (USA). Specifically, the number of bank mergers in the 1990s had increased 215% from the early 1980s (Segal. 1974; Vander Vennet. 1996; Becher 2000). According to Jensen (1993), Mitchell and Mulherin (1996) and Weston et al. (1998) the increase of merger activity was mainly due to deregulation. Many studies have shown that the result of M&A activity generally leads to a significant value increase for target companies and acquiring companies endure a non-significant value decrease.

Until the beginning of the 21st_{century much of the prior research focusing on M&A activity in}

the banking sector has been from the USA. It wasn’t until Cybo-Ottone and Murgia (2000) that the effect of M&A announcements on stock prices in the European banking sector has been researched. The majority of the research is however focused on periods before the financial crisis, which started in 2007. The financial crisis, which was ignited in the banking sector in the US due to risky loans, brought the worldwide economy into a recession. Banks had solvency and liquidity problems that required major bail-outs from governments in many different countries. This crisis brought fear and caution into the financial markets, it changed the banking sector as a whole. Therefore, examining M&A activity in the “new banking sector” gives us an insight in the changes that took place in the banking sector and if the value creation due to M&A activity remained. There has been some research in value creation due to M&As in Europe where few differences have been found between pre-crisis and post-crisis M&A performances. Although some research has been done on the impact of the crisis, there has not yet been any research performed comparing the effects the crisis had on M&A performance in the United States of America and European Union banking sector.

This paper, adapting a standard “event study” methodology, will be focusing on data from banks in the European Union and the United States of America. Differences in investor reactions due to M&A announcements will be sought in European and USA M&A deals. I will focus on M&A activity announcements within the time period of 2005 to 2014. The impact of the recession will be analyzed as the data sample starts two years prior to the housing bubble burst in 2007, which ignited the financial crisis, and continue to analyze wealth creation due to M&A activity until 2014.

The remainder of this paper proceeds as follows: Chapter 2 provides a brief theoretical summary of M&A activity and reviews the literature on bank M&As . In Chapter 3 the data sample is defined and the used methodology of the research is explained. Chapter 4 will show the results of my research providing data and descriptive statistics on the relevant M&A activity. Chapter 5 will contain a conclusion. summary and discusses interesting future research possibilities.

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CHAPTER 2 Theory behind M&A activity and stock price reactions

2.1 The advantages and disadvantages of M&As

There are several reasons for companies to engage in M&A activity. It can be very profitable for a firm and its shareholders’, but there are certain risks that come along with M&A activity. In table 1 I summarize and define the most important advantages and risks for domestic M&As.

One of the main motives behind M&A activity is economies of scale. Economies of scale occur when there are cost advantages that arise due to larger size, output or scale of operation. The idea behind economies of scale is that fixed costs are spread out over a larger amount of units produced. Therefore, the cost per unit decreases and the profit margin on the products increase. Economies of scale within the banking industries imply that banks wishing to merge delete: are searching for a way to spread out fixed overhead and operating costs.

Another motive for M&A is efficiency. Every bank has its own strengths and weaknesses. M&As can bring banks together that complement one another; one’s weakness is another’s gain. A combination of the two different companies forms a stronger united entity.

Size is another main motive for M&As. Market power and capital can be key factors to good performances by companies. Especially in the banking sector, where larger capital can increase liquidity and be used to generate positive returns. Increasing the size of a bank is also a useful tool that can be used to avoid hostile takeovers by other (larger) banks.

The advantages of economies of scope, providing a larger range of services or products, is also a major motive behind M&A deals. Positive synergies can arise from M&As that benefit both banks by providing a bigger variety of services and also benefit from each other’s existing distribution networks.

Next to the positive possible outcomes from M&A activity there are also risks that need to be taken into account when entering any M&A deal. A key element of a successful M&A deal is the integration of the two different entities. There are big operating risks involved with M&As such as technical and/or personnel integration difficulties, which could lead to efficiency loss or the loss of key personnel and/or clients. If the transition between two banks does not happen in the right way, it can be very costly to both entities and their performances.

2.2 Stock price reaction: theoretical arguments

Mergers and acquisitions have always drawn a lot of attention from participants of the financial markets. Unforeseen changes occur due to these M&A deals and speculators see an opportunity to benefit from these transactions. Understanding the way stock prices react to M&A announcements is therefore a “hot topic”. In previous research we have seen certain trends in the way investors react to M&A announcements. However to compare stock price reactions after the financial crisis that hit in 2007, we need some background information first.

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Therefore, if the management of a company is announcing a M&A deal, it is because they see an opportunity to increase value for their shareholders and want to capitalize on it. These opportunities are presented if the management of the acquirer believes the target company is undervalued or can benefit from a synergy. However, no guarantee is given that the decision of management to engage in a M&A deal is always made in the best interest for shareholders. Management and shareholders can differ in their opinions of what the strategy of a bank should be. Something we must take into account is that M&A deals require shareholder approval. That is why bank management must always present their motives to shareholders and obtain their approval.

Assuming investors are rational and have all available information, they will investigate the motives for an M&A deal and decide if the M&A deal is in their best interest. Assuming that investors are rational and able to form an opinion on the motive of the management of the acquiring company, the following changes take place:

Acquiring banks’ shares:

If shareholders expect that management has their interest at heart, the M&A deal yields a positive reaction and stock price will rise due to a demand increase of the stock. On the other hand, if M&A deal seems to solely benefit the management of the acquiring firm, shareholders will not want to see their own value decrease and sell their share of stocks resulting in a decrease of the stock price. In case of information asymmetries, the market could react differently because shareholders and investors are misinformed and make unusual decisions.

Target banks’ shares:

As mentioned above, if investors feel that the target company’s share price is undervalued or that the management of the acquiring company is better fit to run the company and increase the value of the company, then investors will be looking to buy shares of the target company and benefit from the value increase of the M&A deal. This will result in an increase of the stock price of the target company. The reactions of the markets as explained in this chapter are based on theory and under the assumption that investors are rational. Namely, that all shareholders have all available information and are able to make a well-informed decision. In this paper, I will investigate if these theoretical assumptions are correct during a period of recession and if these assumptions hold for both the European Union and the United States of America.

2.3 Literature review

Mergers and acquisitions have attracted a lot of attention throughout the years. M&A activity started to pick up in the 1980s in the US. After a 215% increase of M&A activity in the 1990s in the US, M&A activity in Europe started to also pick up. Due to the increasing amount of companies and banks that

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participated in M&A deals, studies were set up to discover the motives behind it (Focarelli et al. 2002). The discovered motives were then put to the test in studies that follow. Motives such as benefits in size, capital and efficiency had been tested and have not always proven to hold up when dealing with M&A activity.

Studies analyzing M&A performances started in the US, discovering that in most cases significant positive abnormal returns are observed for target banks but acquiring banks incurred insignificant negative returns (Hawawini and Swary. 1990 and Cornett and De. 1991). The results of Houston and Ryngeart (1994) supported those findings while also discovering a correlation with prior levels of profitability due to the M&A announcement and overall value creation of the M&A deal.

Studies examining the effect on stock prices due to M&A announcements of banks in Europe, starting years later, showed contradictory results (see Cybo-Ottone and Murgia. 2000). The results provided by Cybo-Ottone and Murgia (2000) showed that also acquiring banks experience positive abnormal returns. The results on the target banks on the other hand, were similar to the results of studies analyzing changes in stock prices due to M&A announcements in the US. More research took place in Europe in the subsequent years supporting the results of Cybo-Ottone and Murgia (2000) (see Bietel and Schiereck. 2001; Ismail and Davidson. 2004; Campa and Hernando. 2006).

Cross-border studies have shown some interesting results. According to Amihub. DeLong and Saunders (2002), uncertainty for investors and higher risk due to limited knowledge of the market of the foreign country, causes a negative insignificant effect on the acquiring banks’ stock price but the stock price of the target banks significantly increase.

Although previous studies have had similar results, there has been limited research into stock price changes due to M&A announcements after the financial crisis that came upon us in 2007. The landscape of the banking sector had changed dramatically since the financial crisis. Beltratti and Paladino (2013) were the first to research if M&A changed due to the financial crisis in Europe. Finding that no significant abnormal returns were observed around the announcement of an acquisition but only observed at completion of M&A deals.

Where deregulation stimulated M&A activity in the twentieth century, the effect on mergers and acquisitions due to more regulation as a result of the financial crisis has not been well researched. There have been many concerns prior to the financial crisis that the European Union couldn’t handle a the magnitude of the concerning crisis. According to Pisani-Ferry and Sapir (2010) the European Union handled the crisis better than expected. This was due to the swift and effective actions of both the European Central Bank and the European Commission by providing liquidity and competition discipline flexibility. Aziz, Lilti and Elbadraoui (2010) empirically investigated whether and how the post crisis mergers and acquisitions activity performed by European banks relate to bailouts during the financial crisis. Their findings were confirmed by Dam and Koetter (2012) which both found a significant relation between bailouts during the financial crisis and banks that were “too-big-to-fail”. Robust evidence had been found, both in the US and EU, showing strong implications that M&A deals in years leading up to

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the financial crisis were motivated by the desire to obtain “too-big-to-fail” status (see DeYoung. Douglas and Molyneux. 2009). When the financial crisis then finally hit, governments bailed out the banks that were, in their opinion, vital to their economy by acquiring shares of these banks and providing funds for liquidity and stabilization (see Beck. Dewatripont. Freixas. Seabright and Coyle (2010). Next to mergers and acquisitions forced upon by governments, many banks sought M&A deals themselves to survive the crisis which resulted in a large amount of M&A activity during the financial crisis.

Regulatory institutions in the US and EU are attempting to protect the financial industry by forcing banks to downsize and to demerge. They want to eliminate banks that are seen as “too-big-to-fail” and make the financial industry more stable by implementing new regulatory rules. This is a current ongoing process which still requires some research.

Table 1 is an overview table of the most relevant literature to my research. Remarkable is that throughout all the years, starting with Fama et al. (1969) until Kyriazopoulos (2016), investors reactions to M&A announcements have remained the same. Different time periods have been analyzed, using different models, but target banks continue to realize significant positive abnormal returns where acquiring banks show insignificant abnormal returns time and time again. Table 1: Table of literature: Overview of key studies throughout the years

Author(s) Region Time-period Method Event window Target banks Acquiring banks Fama et al. (1969) US 1927-1959 Regression analysis (-30 ; +30) Significant positive Insignificant Beitel,Schiereck , Wharenburg (1993) US&EU 1985-2000 Regression Analysis (-20 ; +20) Significant positive Insignificant Cybo – Ottone, Murgia (2000) EU 1988-1997 Market

Model (-20 ; +20) Significant positive

Insignificant

Ismail, Davidson

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EU 1987-1999 Market

Insignificant Campa, Hernando (2006) EU 1998-2002 CAPM (-90 ; +360) Significant positive Insignificant Asimakopoulos, Athanasoglou (2009) EU 1990-1994 Market Model (-20 ; +20) Significant positive Insignificant Hagendorff, Collins, Keasey (2009) US&EU 2000-2009 Market Model

(-20 ; +5) Not analyzed Insignificant

Beltratti, Paladino (2013)

EU 2007-2010 Regression analysis

(-10 ; +10) Not analyzed Insignificant Kyriazopoulos (2016) EU 1995-2015 Market Model and Regression analysis (-10 ; +10) Significant positive Insignificant

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CHAPTER 3 Data and Methodology

3.1 Data sample

The data on M&A activity examined in this paper has been provided by the “Thomson Financial Securities Data Company- Mergers and Acquisitions database”. The information related to the share prices of banks examined and the market indices, S&P500 for American banks and S&P Europe for European banks, was extracted from Bloomberg L.P.. I attempted to research the effects of Trans-Atlantic(cross-border) M&As, but unfortunately there is not enough data in the chosen timeframe of the data sample.

The period of the recession I am examining starts in 2007 in the US. Therefore, the selected sample includes announced M&A transactions from a period before the recession, starting in the beginning of 2005, until the end of 2014. The selected M&A transactions performed by banks were completed and the banks are registered either in the European Union or in the United States of America and are also stock market listed companies.

Table 2: Overview of domestic M&A activity in the United States of America and the European Union

Year Domestic US M&As Domestic EU M&As Trans-Atlantic M&As % of total 2005 34 11 1 9% 2006 52 14 4 14% 2007 59 17 2 16% 2008 40 16 4 12% 2009 15 12 0 5% 2010 22 7 2 6% 2011 19 5 0 5% 2012 41 15 1 12% 2013 36 11 1 10% 2014 48 5 0 11% Total 366 113 15 494 (100%)

The financial crisis hit in 2007. However, no large decrease in domestic mergers can be seen in table 1 in that year. This is because M&As were forced upon many banks due to regulatory changes and also to avoid bankruptcy. A large decrease in M&A activity started in 2009 lasting until 2012 where it started to pick up again. Although the financial crisis started in the USA, European banks were also hit by the crisis after a while. European banks were forced into M&As as well due to regulatory changes and to avoid bankruptcy. Table 2 shows the decreased amount of M&As starting in 2010, a year after the large decrease in M&As in the US. An interesting finding in table 2 is that despite the delay in the decrease of mergers and acquisitions in EU, both in the EU and US M&As activity increased

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significantly in the year 2012. This is an interesting finding because economists generally believe that the US recovered faster than the EU as an economy did.

3.2 Methodology

This paper wants to analyze the shareholders’ value creation due to M&A deals of banks in the United States of America and European Union. To do this, I will use a standard “event study” methodology. I assume that the “Market Efficiency Hypothesis” holds, meaning that stock market prices fully and immediately incorporate all available information. If this assumption holds, any announcements of M&A activity lead to an immediate reaction of the connected stock prices.

To analyze the effect of an announcement of M&A activity to related stock prices. I use the market model to measure abnormal returns. The market model presupposes a linear relation between the returns of the bank’s stocks and the market benchmark portfolio, giving the following formula:

𝑅"# = 𝑎"+ 𝛽)#+ 𝜀"# (1)

𝑅"# is the expected return of share 𝑖 at time 𝑡. 𝑅)# is the return of the market portfolio at time 𝑡. 𝑎" and

𝛽)# are coefficients of the model. 𝑒"# is a statistical error term having an expected value of E(𝑒"#)=0, a

constant variance Var(𝑒"#)=𝑠/ and E(𝑒"#.𝑒". 𝑒1)=0 for every 𝑖 ≠ 𝑗.

Using the market model, I can then calculate the abnormal returns (AR) for each stock:

𝐴𝑅"# = 𝑅"#− [𝛼"+ 𝛽)#] (2)

To get more accurate results, for robustness purposes, I also use the market-adjust returns model. This model contains an alpha coefficient of zero and beta equal to unity, giving us the following formula:

𝐴𝑅"# = 𝑅"#− 𝑅)# (3)

The abnormal returns I calculate with equation (4) provide us an indication of of the impact of the announcment to a individual time. To get an accurate indication of that impact over different sub-periods, we must compute average abnormal returns through time in accordance with the following equation:

𝐴𝐴𝑅_# = 9

: 𝐴𝑅"#

:

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Finally, in equation (5) I sum the average abnormal returns over the amount of days we analyse the stock prices, using different time periods, to form the cumulative average abnormal returns(CAAR):

𝐶𝐴𝐴𝑅= = =#;9𝐴𝐴𝑅# (5)

To test the statistical significance for the abnormal returns during the given period, I will be using the OLS (Ordinary least squares) method. An important assumumption is that all the data is normally distributed. Using Brown & Warner’s test of significance I conclude if H0 still holds using a significance level of 1%.

H0 à There are no significant abnormal returns for a bank involved in a M&A deal H1 à There are significant abnormal returns for a bank involved in a M&A deal Brown & Warners’s test of significance:

Test statistics -- Brown and Warner (see Brown & Warner. 1984)

Brown and Warner is especially developed for event studies. We will use it to check if the abnormal returns of the selected companies in our sample data significantly differ from the market. We will use S&P500 as an index for American companies and S&P Europe for European companies. Our H0 hypotheses will be that there is no significant difference and H1 will be that there is. The following steps are how we will compute the Brown and Warner test:

ARi.t àfirm i's abnormal return (market model adjusted) on day t.

Find all AARt à the mean (over all the companies in the sample) market model adjusted abnormal

return on day t.

Compute 𝜎 à the standard deviation of the AARt over all days in the estimation period (using N-1

weighting, so it is an estimate of the population standard deviation).

The test statistic for a given mean (over all the companies) market model adjusted abnormal return on a given day, AARt.

𝑇 =@@AB

C

Assume all data to be normally distributed. This is possible due to the Central Limit Theorem (see Billingsley (1979. pp. 308 – 319)]. It guarantees that if excess returns in the cross-section of

securities are independent and identically distributed drawings from finite variance distributions, the distribution of the sample mean excess return converges to normality as the number of securities increases. A concern in this research is whether this sample size’s excess returns have the same result. It is concerned normally distributed by the Central Limit Theorem is the sample size exceeds N=200. This is the case for US Domestic M&As (N=224) but not for EU Domestic M&As

(N=104).

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CHAPTER 4 Empirical research results

As mentioned above in the literature review, there has been a large amount of research performed to grasp the impact of M&A announcements in the banking sector. The first studies in the US show significant positive abnormal returns for target firms and an insignificant negative abnormal return for acquiring firms. In the year 2000 the first research on the impact of M&A announcements on the stock prices of the participating firms had been undertaken. Similar results were shown in Europe as in the USA. Our results, with a data sample from 2005-2014, have shown that the impact of M&A announcements to the stock price of the particpating firms has generally remained unchanged but with a few interesting additional circumstances.

Table 2 is a summary of the data sample used to analyze targeted firms engaging in an M&A deal in the US as well as in Europe. As you can see in the table, there has been more than twice as much M&A activity in the US with 242 cases as opposed to Europe with 104 M&A cases. The Average Abnormal Returns in the US have a wider spread, difference between Min and Max. This means that US investors react more severely to unforeseen changes than EU investors. Specifically, the AAR of USA on the day of announcement shows us a positive abnormal return of 13.4%. This significant increase in stock price is reasonably larger than the AAR of 5.4% in Europe.

Table 3: Summary target banks involved in a domestic Merger and Acquisition deal from 2005-2014

Target banks US Target banks EU

Variable Obs AAR 𝝈 Min Max Obs AAR 𝝈 Min Max

Day -10 242 -0.004 0.027 -0.114 0.129 104 0.002 0.016 -0.035 0.057 Day -9 242 -0.005 0.041 -0.204 0.452 104 0.003 0.023 -0.063 0.107 Day -8 242 -0.006 0.036 -0.193 0.349 104 0.000 0.021 -0.085 0.061 Day -7 242 -0.006 0.030 -0.157 0.178 104 0.004 0.033 -0.094 0.220 Day -6 242 -0.005 0.028 -0.123 0.148 104 0.000 0.025 -0.096 0.104 Day -5 242 -0.006 0.039 -0.317 0.268 104 -0.001 0.034 -0.101 0.142 Day -4 242 -0.007 0.048 -0.575 0.180 104 0.005 0.041 -0.108 0.291 Day -3 242 -0.005 0.060 -0.391 0.694 104 0.001 0.028 -0.091 0.108 Day -2 242 -0.007 0.035 -0.208 0.272 104 -0.001 0.029 -0.141 0.093 Day -1 242 -0.003 0.057 -0.344 0.483 104 0.002 0.046 -0.232 0.196 Day 0 242 0.134 0.243 -0.776 1.275 104 0.054 0.191 -0.214 1.287 Day 1 242 0.072 0.172 -0.263 0.945 104 0.023 0.078 -0.305 0.292 Day 2 242 -0.003 0.031 -0.120 0.274 104 -0.001 0.039 -0.136 0.164 Day 3 242 -0.006 0.031 -0.166 0.212 104 -0.003 0.047 -0.188 0.290 Day 4 242 -0.005 0.027 -0.107 0.235 104 0.003 0.038 -0.106 0.251 Day 5 242 0.001 0.068 -0.110 0.816 104 0.002 0.028 -0.103 0.174 Day 6 242 -0.005 0.036 -0.267 0.366 104 -0.006 0.096 -0.948 0.084 Day 7 242 -0.005 0.027 -0.279 0.126 104 0.011 0.114 -0.095 1.137 Day 8 242 -0.005 0.027 -0.090 0.209 104 0.011 0.102 -0.168 1.008 Day 9 242 -0.008 0.026 -0.172 0.154 104 -0.002 0.040 -0.156 0.268 Day 10 242 -0.007 0.023 -0.161 0.109 104 0.003 0.045 -0.231 0.241 Notes: Market-adjusted abnormal returns are computed using the following formula: 𝐴𝑅_"# = 𝑅_"#− 𝑅_)#, then using 𝐴𝐴𝑅_#= 9

: 𝐴𝑅"# :

1;9 we compute the market-adjusted abnormal returns (AARs).

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These results are consistent with previous findings where target firms see a significant positive abnormal return due to an M&A announcement (Campa en Hernando. 2006). The effect of the changes in the banking sector due to the financial crisis do not result in different investor behavior of the market participants’ reaction to M&A announcements. To test the significance of these AAR’s and see if we reject our hypothesis the Brown & Warner t-test will be computed. As mentioned earlier, our null-hypothesis is that target firms do not have significant abnormal returns.

Table 4: Brown & Warner test of significance of market-adjusted average abnormal returns of target banks involved with Merger and Acquisition deals from the period of 2005-2014

Day AAR t-statistic CAAR AAR t-statistic CAAR

-10 -0.004 -0.1475 -0.004 0.0021 0.1356 0.0021 -9 -0.0046 -0.112 -0.0086 0.0027 0.118 0.0048 -8 -0.0061 -0.1697 -0.0147 -0.0003 -0.0145 0.0045 -7 -0.0063 -0.2073 -0.021 0.0041 0.1233 0.0086 -6 -0.0051 -0.1855 -0.0261 0.0001 0.0032 0.0087 -5 -0.0055 -0.1405 -0.0316 -0.0009 -0.0275 0.0078 -4 -0.0073 -0.151 -0.0389 0.0051 0.124 0.0129 -3 -0.0047 -0.0786 -0.0436 0.001 0.0358 0.0139 -2 -0.0072 -0.2066 -0.0508 -0.0007 -0.025 0.0132 -1 -0.0034 -0.0589 -0.0542 0.002 0.043 0.0152 0 0.1341 0.552 0.0799 0.0545 0.2864 0.0697 1 0.0723 0.4207 0.1522 0.0229 0.2955 0.0926 2 -0.0035 -0.1132 0.1487 -0.0009 -0.0221 0.0917 3 -0.0063 -0.2037 0.1424 -0.0034 -0.0729 0.0883 4 -0.0047 -0.1757 0.1377 0.003 0.078 0.0913 5 0.0008 0.0113 0.1385 0.0022 0.0771 0.0935 6 -0.0049 -0.1365 0.1336 -0.006 -0.0627 0.0875 7 -0.0052 -0.1921 0.1284 0.0113 0.0992 0.0988 8 -0.0047 -0.1754 0.1237 0.0106 0.1042 0.1094 9 -0.0076 -0.2917 0.1161 -0.0023 -0.0567 0.1071 10 -0.0071 -0.3123 0.109 0.0026 0.0565 0.1097

Period CAAR US t-statistic CAAR EU t-statistic

(-10 -1) -0.0542 -1.345 0.0152 0.516 (-5 -1) -0.0281 -0.583 0.0065 0.184 (-10 0) 0.0799 1.360 0.0697 1.581 (-10 +10) 0.109 2.057 0.1097 2.075 (-5 +5) 0.1646 2.230 0.0848 1.563 (-1 +5) 0.1893 2.108 0.0803 1.206 (+1 +10) 0.0291 0.624 0.04 0.639

Notes: AAR = average abnormal return(market model adjusted) on day t. 𝜎 = standard deviation of theAR over all days in the estimation period (using N-1 weighting. so it is an estimate of the population standard deviation). The Brown & Warner t-test is calculated by: 𝑇 =@@AB

C . This test is a two-sided test with a level of significance of

1%. A T-test value is therefore considered significant when: t-value< -2.58 or 2.58<t-value.

Table 3 shows us the market-adjusted average abnormal returns(AARs) and standard deviations on each day from 10 days before the announcement until 10 days after. Using the Brown & Warner

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significance test we compute a significance value for each of those days. We see that that on the day of announcement both US as well as EU target banks have significant positive AARs. In figure 1 we can see that before- and after the announcement the AARs are roughly 0%. An interesting result is that EU banks see a positive AAR on the 7th and 8th day after announcement. Although not significant according to a 99% significance level which I maintain throughout my research, I believe that EU target banks realize positive AARs because of the relatively modest reaction EU investors have to M&A activity on the day of the announcement. The increase in stock price of EU target banks therefore is spread out over a longer period of time, as opposed to US target banks, where the AAR on the day of announcement seems to overshoot a bit, causing negative AARs in the days after the announcement. Figure 1 displays a clear view of the daily AARs leading up to the announcement. We can see that there are no signs of leakage to be observed for target banks. The cumulative market-adjusted abnormal returns (CAARs) found for my (-10 +10) time period, although insignificant with a 1% level of significance, are around 11% in both the US and EU. This is an interesting finding because it shows that despite the overshooting of US investors on the day of announcement, EU investors realize the same CAAR over time but in a different tempo. Other CAAR results show us that up until the announcement day, there are insignificant negative CAARs in the US and insignificant positive CAARs in EU. This again shows no signs of leakage. Short time periods around the announcement date show higher CAARs for US target banks than EU target banks that displays the heavier reactions US investors have than EU investors on target banks.

Figure 1: Market-adjusted average abnormal returns(AARs) for target banks from a period of 10 days prior to 10 days after M&A announcement

-0.1 -0.05 0 0.05 0.1 0.15 -15 -10 -5 0 5 10 15 Average Abnormal Returns 10 days prior until 10 days after announcement AAR US AAR EU

Notes: The X-axis shows the time period of the research beginning 10 days prior to announcement and ending 10 after announcement. On the Y-axis the AARs are portrayed within the timeframe.

Table 4 is a summary of the data sample used to analyze acquiring firms engaging in an M&A deal in the United States of America as well as in the European Union. Where we saw remarkable larger

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AARs of target firms engaging in M&A deals in the US compared to EU banks, the difference of AARs in acquiring firms is less significant.

Both the US and the EU have insignificant positive returns on the day of announcement, but the difference of the AAR’s is relatively small compared to the difference in target firms. More specific, the AAR of acquiring banks in the US on the day of announcement shows us a negative abnormal return of 0.26% where EU banks realized a 0.14% positive AAR on the day of announcement.

These results are consistent with previous findings where target firms see a significant positive abnormal return due to an M&A announcement (Campa en Hernando. 2006). The effect of the changes in the banking sector due to the financial crisis do not result in different market behavior of the market participants’ reaction to M&A announcements of acquiring banks. To test the significance of these AARs and see if we reject our null-hypothesis the Brown & Warner t-test will be computed. As mentioned earlier, our null-hypothesis is that target firms do not have significant abnormal returns. Table 5: Summary Acquiring banks involved in a domestic Merger and Acquisition deal from 2005-2014

Acquiring banks US Acquiring banks EU

Variable Obs AAR 𝜎 Min Max Obs AAR 𝜎 Min Max

Day -10 242 0.0004 0.0187 -0.1014 0.1489 104 0.0046 0.0256 -0.0468 0.1865 Day -9 242 -0.0046 0.0295 -0.3414 0.0653 104 -0.0050 0.0337 -0.3060 0.0357 Day -8 242 0.0017 0.0335 -0.0844 0.4330 104 0.0017 0.0274 -0.1269 0.1314 Day -7 242 -0.0001 0.0153 -0.0499 0.1177 104 0.0051 0.0245 -0.0608 0.0948 Day -6 242 0.0005 0.0204 -0.0673 0.1858 104 -0.0018 0.0165 -0.0688 0.0498 Day -5 242 0.0003 0.0165 -0.0478 0.1083 104 0.0012 0.0201 -0.0912 0.0472 Day -4 242 0.0013 0.0216 -0.1389 0.1593 104 -0.0013 0.0245 -0.1151 0.0633 Day -3 242 0.0008 0.0147 -0.0713 0.0661 104 0.0031 0.0420 -0.3208 0.1472 Day -2 242 -0.0014 0.0152 -0.0862 0.0407 104 0.0045 0.0510 -0.2756 0.3366 Day -1 242 -0.0003 0.0162 -0.0843 0.0851 104 -0.0041 0.0363 -0.3174 0.0978 Day 0 242 -0.0026 0.0399 -0.1211 0.2444 104 0.0014 0.0624 -0.1293 0.5536 Day 1 242 -0.0008 0.0256 -0.0984 0.1061 104 -0.0047 0.0393 -0.2528 0.0748 Day 2 242 0.0028 0.0214 -0.0878 0.1399 104 0.0061 0.0307 -0.0665 0.1635 Day 3 242 0.0006 0.0181 -0.1068 0.0943 104 -0.0017 0.0234 -0.0528 0.1347 Day 4 242 -0.0011 0.0208 -0.1143 0.1297 104 0.0022 0.0273 -0.1078 0.1198 Day 5 242 0.0001 0.0146 -0.0552 0.0571 104 -0.0039 0.0203 -0.0920 0.0384 Day 6 242 -0.0002 0.0156 -0.0774 0.0730 104 0.0030 0.0289 -0.1827 0.1356 Day 7 242 0.0008 0.0180 -0.0824 0.1259 104 0.0018 0.0253 -0.1173 0.0874 Day 8 242 0.0018 0.0198 -0.1187 0.1402 104 0.0009 0.0230 -0.0806 0.0825 Day 9 242 0.0004 0.0185 -0.0480 0.1236 104 -0.0029 0.0252 -0.1721 0.0696 Day 10 242 0.0002 0.0156 -0.0586 0.1089 104 0.0019 0.0353 -0.1316 0.2773 Notes: Market-adjusted abnormal returns are computed using the following formula: 𝐴𝑅"# = 𝑅"#− 𝑅)#, then

using 𝐴𝐴𝑅#=_:9 :1;9𝐴𝑅"# we compute the market-adjusted abnormal returns (AARs).

Table 5 shows us the market-adjusted average abnormal adjusted returns (AARs) of acquiring banks. Using the Brown & Warner significance test we compute the significance value for each of those days. We see that on the day of announcement, both US and EU target banks have insignificant

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cumulative average abnormal returns (CAARs). Figure 2 shows us that during the entire period, from 10 days before to 10 days after the announcement, acquiring banks in both the US and EU have insignificant AARs. The daily AARs for acquiring banks do not show any signs of leakage in the days leading up to the announcement, this was also the case for target banks’ AARs prior to the announcement date. The different time periods I examined for the CAARs are all insignificant and around zero. Here too, there are no signs of leakage and it is clear that a M&A announcement does not have a significant impact on acquiring banks in the US or EU.

Table 6: Brown & Warner test of significance of market-adjusted average abnormal returns of acquiring banks involved with Merger and Acquisition deals from the period of 2005-2014

Day AAR t-statistic CAAR AAR t-statistic CAAR

-10 0.000 0.021 0.000 0.005 0.180 0.005 -9 -0.005 -0.156 -0.004 -0.005 -0.148 0.000 -8 0.002 0.051 -0.003 0.002 0.062 0.001 -7 0.000 -0.007 -0.003 0.005 0.208 0.006 -6 0.001 0.025 -0.002 -0.002 -0.109 0.005 -5 0.000 0.018 -0.002 0.001 0.060 0.006 -4 0.001 0.060 -0.001 -0.001 -0.053 0.005 -3 0.001 0.054 0.000 0.003 0.074 0.008 -2 -0.001 -0.092 -0.001 0.005 0.088 0.012 -1 0.000 -0.019 -0.001 -0.004 -0.113 0.008 0 -0.003 -0.065 -0.004 0.001 0.022 0.009 1 -0.001 -0.031 -0.005 -0.005 -0.120 0.005 2 0.003 0.131 -0.002 0.006 0.199 0.011 3 0.001 0.033 -0.001 -0.002 -0.073 0.009 4 -0.001 -0.053 -0.003 0.002 0.081 0.011 5 0.000 0.007 -0.002 -0.004 -0.192 0.007 6 0.000 -0.013 -0.003 0.003 0.104 0.010 7 0.001 0.044 -0.002 0.002 0.071 0.012 8 0.002 0.091 0.000 0.001 0.039 0.013 9 0.000 0.022 0.000 -0.003 -0.115 0.010 10 0.000 0.013 0.001 0.002 0.054 0.012

Period CAAR US t-statistic CAAR EU t-statistic

(-10 -1) -0.001 -0.069 0.008 0.265 (-5 -1) 0.001 0.042 0.003 0.098 (-10 0) -0.004 -0.182 0.009 0.284 (-10 +10) 0.001 0.029 0.012 0.395 (-5 +5) 0.000 -0.015 0.003 0.082 (-1 +5) -0.001 -0.058 -0.005 -0.137 (+1 +10) 0.005 0.245 0.003 0.097

Notes: AAR = average abnormal return (market model adjusted) on day t. σ = standard deviation of theAR over all days in the estimation period (using N-1 weighting. so it is an estimate of the population standard deviation). The Brown & Warner t-test is calculated by: T =GGHI

J . This test is a two-sided test with a level of significance of

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Figure 2: Market-adjusted average abnormal returns for acquiring banks from a period of 10 days prior to 10 days after M&A announcement

-0.05 -0.03 -0.01 0.01 0.03 0.05 -15 -10 -5 0 5 10 15 Average Abnormal Returns 10 days prior until 10 days after announcement AAR US AAR EU

Notes: The X-axis shows the time period of the research beginning 10 days prior to announcement and ending 10 after announcement. On the Y-axis the AARs are portrayed within the timeframe.

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CHAPTER 5 Conclusion

This study examines the short-term effect on stock prices for a sample of banks that have engaged and completed a domestic mergers and acquisition deal in the United States of America or the European Union. I examined both target- and acquiring banks’ market-adjusted average abnormal returns (AARs) for a period of 21 days, 10 days before- until 10 days after the M&A announcement date. The M&As I analyze take place in the period 2005-2014. I attempt to find distinctive features in investor behavior and investigate if there are distinctive features in investor behavior to be found after the financial crisis that occurred in 2007 that had not existed before the crisis.

My results show that domestic bank M&As, on average, cause significant abnormal returns to target firms in the US as well as in Europe. Both EU and US target banks experience significant abnormal returns on the day of the announcement, with no signs of leakage in the days prior to the announcement. An interesting finding was that US investors react more severe to M&A announcements than EU investors do. US target banks showed an AAR of 13.4% on the day of announcement, while EU target banks realized a 5.4% AAR. Using the Brown & Warner test of significance, I found both the AARs to be significant. but the difference in AARs highlight an interesting distinctive difference in investor behavior between US- and EU investors.

My findings on acquiring banks in the US and EU did not show any major differences between the investors. All AARs on acquiring banks were insignificant, according to the Brown and Warner test of significance. In the time period of 10 days prior until 10 days after the M&A announcement no significant AARs were found.

My findings are in line with Campa and Hernando (2006). Hagendorff et al. (2008). and Beltratti and Paladino (2013). Investor reactions to M&A announcements have not changed much over time. My results are similar to that of previous research, going back all the way to Fama et al. (1969). Target banks have always experienced significant AARs and acquiring banks have shown insignificant AARs throughout the years. My conclusion, despite regulatory changes and other differences in the banking sector, is that the financial crisis of 2007 did not have a major impact on investor behavior concerning M&A announcements.

As mentioned earlier, the difference in AAR of US banks on the day of M&A announcements to that of EU investors is an interesting finding. Researching differences in investor behavior between the US and EU, and also other major financial markets around the world, could be crucial to understanding the global financial markets. During my research, I found too little data to examine Cross-border M&As. Another limitation was the limited amount of data found on completed EU domestic M&A deals. The sample data did not fulfill the requirement N>200 that is required to assume normal distribution according to the Central Limit Theorem. These limitations could be overcome analyzing M&A activity over a longer period of time or adding more countries to the data sample.

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fail”. We also saw that due to the financial crisis and regulatory changes, many banks were forced to engage in M&A activity. Currently, banks are still dealing with ongoing regulatory changes that continue to alter the banking sector. An interesting topic for further research would be the effects of demergers in banking. Regulatory institutions want banks to decrease their size and demerge as a preemptive measure to protect the financial industry against a crisis. Future research should also analyze recent (political) events, i.e. Brexit, will alter the European financial market all together. Moreover, the ratification of the ‘Transatlantic Trade and Investment Partnership’ can affect domestic M&As in both

the US and the EU as well as trans-Atlantic M&As. It is important that extensive research is done on

the forever evolving aspects of the banking sector.

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Amihud Y., DeLong G., Saunders A., 2002, The effect of cross-border bank mergers on bank risk and value.’ Journal of International Money and Finance 21, 857-877.

Anderson C., Becher D. A., Cambell I., Terry L., 2004, Bank Mergers, The market for Bank CEOs and Managerial Incentives. Journal of Financial Intermediation 13, 6-27.

Asimakopoulos I., Athanasoglou P., 2009, Revisiting the merger and acquisition performance of European banks, Bank of Greece Working Paper 100.

Beitel P., Schiereck D., Wahrenburg M., 2004, Explaining the M&A success in European bank mergers and acquisitions, European Financial Management Journal 10, 109-34.

Beltratti A., Paladino G., 2013, Is M&A different during a crisis? Evidence from the European

banking sector, Journal of Banking & Finance 37, 5394-5405.

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Hagendorff J., Collins M., Keasey K., 2008, Investor protection and the value effects of bank merger announcement in Europe and the US, Journal of Banking and Finance 32, 1333-1348.

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Financial economics 97, 319-338.

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Value? Recent Evidence from Europe, Journal of Finance 3, 100-116.

Pisani-Ferry J., Sapir A., 2010, Banking crisis management in the EU: an early assessment, Economic

Policy 25, 341-373.

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APPENDIX

Table 1: Table of literature: Overview of key studies throughout the years

Author(s) Region Time-period Method Event window Target banks Acquiring banks Fama et al. (1969) US 1927-1959 Regression analysis (-30 ; +30) Significant positive Insignificant Beitel,Schiereck , Wharenburg (1993) US&EU 1985-2000 Regression Analysis (-20 ; +20) Significant positive Insignificant Cybo – Ottone, Murgia (2000) EU 1988-1997 Market

Insignificant

Ismail, Davidson

(2005)

EU 1987-1999 Market

Insignificant Campa, Hernando (2006) EU 1998-2002 CAPM (-90 ; +360) Significant positive Insignificant Asimakopoulos, Athanasoglou (2009) EU 1990-1994 Market Model (-20 ; +20) Significant positive Insignificant Hagendorff, Collins, Keasey (2009) US&EU 2000-2009 Market Model

(-20 ; +5) Not analyzed Insignificant

Beltratti, Paladino (2013)

EU 2007-2010 Regression analysis

(-10 ; +10) Not analyzed Insignificant Kyriazopoulos (2016) EU 1995-2015 Market Model and Regression analysis (-10 ; +10) Significant positive Insignificant

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Table 2: Overview of domestic M&A activity in the United States of America and the European Union Year Domestic US M&As Domestic EU M&As Trans-Atlantic M&As % of total 2005 34 11 1 9% 2006 52 14 4 14% 2007 59 17 2 16% 2008 40 16 4 12% 2009 15 12 0 5% 2010 22 7 2 6% 2011 19 5 0 5% 2012 41 15 1 12% 2013 36 11 1 10% 2014 48 5 0 11% Total 366 113 15 494 (100%)

Table 3: Summary target banks involved in a domestic Merger and Acquisition deal from 2005-2014

Variable Obs AAR 𝝈 Min Max Obs AAR 𝝈 Min Max

Day -10 242 -0.004 0.027 -0.114 0.129 104 0.002 0.016 -0.035 0.057 Day -9 242 -0.005 0.041 -0.204 0.452 104 0.003 0.023 -0.063 0.107 Day -8 242 -0.006 0.036 -0.193 0.349 104 0.000 0.021 -0.085 0.061 Day -7 242 -0.006 0.030 -0.157 0.178 104 0.004 0.033 -0.094 0.220 Day -6 242 -0.005 0.028 -0.123 0.148 104 0.000 0.025 -0.096 0.104 Day -5 242 -0.006 0.039 -0.317 0.268 104 -0.001 0.034 -0.101 0.142 Day -4 242 -0.007 0.048 -0.575 0.180 104 0.005 0.041 -0.108 0.291 Day -3 242 -0.005 0.060 -0.391 0.694 104 0.001 0.028 -0.091 0.108 Day -2 242 -0.007 0.035 -0.208 0.272 104 -0.001 0.029 -0.141 0.093 Day -1 242 -0.003 0.057 -0.344 0.483 104 0.002 0.046 -0.232 0.196 Day 0 242 0.134 0.243 -0.776 1.275 104 0.054 0.191 -0.214 1.287 Day 1 242 0.072 0.172 -0.263 0.945 104 0.023 0.078 -0.305 0.292 Day 2 242 -0.003 0.031 -0.120 0.274 104 -0.001 0.039 -0.136 0.164 Day 3 242 -0.006 0.031 -0.166 0.212 104 -0.003 0.047 -0.188 0.290 Day 4 242 -0.005 0.027 -0.107 0.235 104 0.003 0.038 -0.106 0.251 Day 5 242 0.001 0.068 -0.110 0.816 104 0.002 0.028 -0.103 0.174 Day 6 242 -0.005 0.036 -0.267 0.366 104 -0.006 0.096 -0.948 0.084 Day 7 242 -0.005 0.027 -0.279 0.126 104 0.011 0.114 -0.095 1.137 Day 8 242 -0.005 0.027 -0.090 0.209 104 0.011 0.102 -0.168 1.008 Day 9 242 -0.008 0.026 -0.172 0.154 104 -0.002 0.040 -0.156 0.268 Day 10 242 -0.007 0.023 -0.161 0.109 104 0.003 0.045 -0.231 0.241

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Table 4: Brown & Warner test of significance of Average Abnormal Adjusted Returns of target banks involved with Merger and Acquisition deals from the period of 2005-2014

-10 -0.004 -0.1475 -0.004 0.0021 0.1356 0.0021 -9 -0.0046 -0.112 -0.0086 0.0027 0.118 0.0048 -8 -0.0061 -0.1697 -0.0147 -0.0003 -0.0145 0.0045 -7 -0.0063 -0.2073 -0.021 0.0041 0.1233 0.0086 -6 -0.0051 -0.1855 -0.0261 0.0001 0.0032 0.0087 -5 -0.0055 -0.1405 -0.0316 -0.0009 -0.0275 0.0078 -4 -0.0073 -0.151 -0.0389 0.0051 0.124 0.0129 -3 -0.0047 -0.0786 -0.0436 0.001 0.0358 0.0139 -2 -0.0072 -0.2066 -0.0508 -0.0007 -0.025 0.0132 -1 -0.0034 -0.0589 -0.0542 0.002 0.043 0.0152 0 0.1341 0.552 0.0799 0.0545 0.2864 0.0697 1 0.0723 0.4207 0.1522 0.0229 0.2955 0.0926 2 -0.0035 -0.1132 0.1487 -0.0009 -0.0221 0.0917 3 -0.0063 -0.2037 0.1424 -0.0034 -0.0729 0.0883 4 -0.0047 -0.1757 0.1377 0.003 0.078 0.0913 5 0.0008 0.0113 0.1385 0.0022 0.0771 0.0935 6 -0.0049 -0.1365 0.1336 -0.006 -0.0627 0.0875 7 -0.0052 -0.1921 0.1284 0.0113 0.0992 0.0988 8 -0.0047 -0.1754 0.1237 0.0106 0.1042 0.1094 9 -0.0076 -0.2917 0.1161 -0.0023 -0.0567 0.1071 10 -0.0071 -0.3123 0.109 0.0026 0.0565 0.1097

Period CAAR US t-statistic CAAR EU t-statistic

(-10 -1) -0.0542 -1.345 0.0152 0.516 (-5 -1) -0.0281 -0.583 0.0065 0.184 (-10 0) 0.0799 1.360 0.0697 1.581 (-10 +10) 0.109 2.057 0.1097 2.075 (-5 +5) 0.1646 2.230 0.0848 1.563 (-1 +5) 0.1893 2.108 0.0803 1.206 (+1 +10) 0.0291 0.624 0.04 0.639

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Table 5: Summary Acquiring involved in a domestic Merger and Acquisition deal from

2005-2014

Variable Obs AAR 𝜎 Min Max Obs AAR 𝜎 Min Max

Day -10 242 0.0004 0.0187 -0.1014 0.1489 104 0.0046 0.0256 -0.0468 0.1865 Day -9 242 -0.0046 0.0295 -0.3414 0.0653 104 -0.0050 0.0337 -0.3060 0.0357 Day -8 242 0.0017 0.0335 -0.0844 0.4330 104 0.0017 0.0274 -0.1269 0.1314 Day -7 242 -0.0001 0.0153 -0.0499 0.1177 104 0.0051 0.0245 -0.0608 0.0948 Day -6 242 0.0005 0.0204 -0.0673 0.1858 104 -0.0018 0.0165 -0.0688 0.0498 Day -5 242 0.0003 0.0165 -0.0478 0.1083 104 0.0012 0.0201 -0.0912 0.0472 Day -4 242 0.0013 0.0216 -0.1389 0.1593 104 -0.0013 0.0245 -0.1151 0.0633 Day -3 242 0.0008 0.0147 -0.0713 0.0661 104 0.0031 0.0420 -0.3208 0.1472 Day -2 242 -0.0014 0.0152 -0.0862 0.0407 104 0.0045 0.0510 -0.2756 0.3366 Day -1 242 -0.0003 0.0162 -0.0843 0.0851 104 -0.0041 0.0363 -0.3174 0.0978 Day 0 242 -0.0026 0.0399 -0.1211 0.2444 104 0.0014 0.0624 -0.1293 0.5536 Day 1 242 -0.0008 0.0256 -0.0984 0.1061 104 -0.0047 0.0393 -0.2528 0.0748 Day 2 242 0.0028 0.0214 -0.0878 0.1399 104 0.0061 0.0307 -0.0665 0.1635 Day 3 242 0.0006 0.0181 -0.1068 0.0943 104 -0.0017 0.0234 -0.0528 0.1347 Day 4 242 -0.0011 0.0208 -0.1143 0.1297 104 0.0022 0.0273 -0.1078 0.1198 Day 5 242 0.0001 0.0146 -0.0552 0.0571 104 -0.0039 0.0203 -0.0920 0.0384 Day 6 242 -0.0002 0.0156 -0.0774 0.0730 104 0.0030 0.0289 -0.1827 0.1356 Day 7 242 0.0008 0.0180 -0.0824 0.1259 104 0.0018 0.0253 -0.1173 0.0874 Day 8 242 0.0018 0.0198 -0.1187 0.1402 104 0.0009 0.0230 -0.0806 0.0825 Day 9 242 0.0004 0.0185 -0.0480 0.1236 104 -0.0029 0.0252 -0.1721 0.0696 Day 10 242 0.0002 0.0156 -0.0586 0.1089 104 0.0019 0.0353 -0.1316 0.2773

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Table 6: Brown & Warner test of significance of Average Abnormal Adjusted Returns of acquiring banks involved with Merger and Acquisition deals from the period of 2005-2014

-10 0.000 0.021 0.000 0.005 0.180 0.005 -9 -0.005 -0.156 -0.004 -0.005 -0.148 0.000 -8 0.002 0.051 -0.003 0.002 0.062 0.001 -7 0.000 -0.007 -0.003 0.005 0.208 0.006 -6 0.001 0.025 -0.002 -0.002 -0.109 0.005 -5 0.000 0.018 -0.002 0.001 0.060 0.006 -4 0.001 0.060 -0.001 -0.001 -0.053 0.005 -3 0.001 0.054 0.000 0.003 0.074 0.008 -2 -0.001 -0.092 -0.001 0.005 0.088 0.012 -1 0.000 -0.019 -0.001 -0.004 -0.113 0.008 0 -0.003 -0.065 -0.004 0.001 0.022 0.009 1 -0.001 -0.031 -0.005 -0.005 -0.120 0.005 2 0.003 0.131 -0.002 0.006 0.199 0.011 3 0.001 0.033 -0.001 -0.002 -0.073 0.009 4 -0.001 -0.053 -0.003 0.002 0.081 0.011 5 0.000 0.007 -0.002 -0.004 -0.192 0.007 6 0.000 -0.013 -0.003 0.003 0.104 0.010 7 0.001 0.044 -0.002 0.002 0.071 0.012 8 0.002 0.091 0.000 0.001 0.039 0.013 9 0.000 0.022 0.000 -0.003 -0.115 0.010 10 0.000 0.013 0.001 0.002 0.054 0.012

Period CAAR US t-statistic CAAR EU t-statistic

(-10 -1) -0.001 -0.069 0.008 0.265 (-5 -1) 0.001 0.042 0.003 0.098 (-10 0) -0.004 -0.182 0.009 0.284 (-10 +10) 0.001 0.029 0.012 0.395 (-5 +5) 0.000 -0.015 0.003 0.082 (-1 +5) -0.001 -0.058 -0.005 -0.137 (+1 +10) 0.005 0.245 0.003 0.097

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Figure 1: Average abnormal adjusted returns for target banks from a period of 10 days prior to 10 days after M&A announcement

-0.1 -0.05 0 0.05 0.1 0.15 -15 -10 -5 0 5 10 15 Average Abnormal Returns 10 days prior until 10 days after announcement AAR US AAR EU

Figure 2: Average abnormal adjusted returns for acquiring banks from a period of 10 days prior to 10 days after M&A announcement

-0.05 -0.03 -0.01 0.01 0.03 0.05 -15 -10 -5 0 5 10 15 Average Abnormal Returns 10 days prior until 10 days after announcement AAR US AAR EU

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Did the financial crisis change investor behavior towards mergers and acquisitions announcements in the banking sector? : Europe versus the United States