#08-17
Bidder Returns and Merger Anticipation: Evidence from Banking Deregulation
David A. Becher, April 2008
Abstract:This paper provides new estimates of the anticipated components of bidder returns. To capture these
estimates, I focus on the banking industry around the passage of interstate deregulation (Riegle Neal Act
of 1994). Overall, I find firms that became bidders after Riegle Neal have large significant positive
returns during its passage. Moreover, these positive wealth effects are significantly larger than the effect
at actual merger announcements. These results suggest bidder returns are anticipated and focusing only
on narrow event windows underestimates gains to bidders. Finally, the positive bidder returns provide
evidence against both the entrenchment and hubris hypotheses. Additional tests provide evidence
mergers are motivated by synergy rather than disciplinary motives.
Keywords: Merger returns; Anticipation; Deregulation; Banking
JEL classifications: G28; G14; G21; G34
