Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258867 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 15 [Issue:] 3 [Article No.:] 144 [Publisher:] MDPI [Place:] Basel [Year:] 2022 [Pages:] 1-21
Publisher: 
MDPI, Basel
Abstract: 
Using a large database of U.S. mergers and acquisitions (M&As) announced from 2010 through 2017, we examine the effects of capital ratio (leverage) on the announcement period stock price reaction as well as on longer-term stock returns and performance, for banks, making comparisons with non-banks. We compare announcement period reactions (computed in different ways) for lower (lower than sample median) capitalized banks and non-banks with that for higher capitalized banks and non-banks. We confirm our results using multivariate analyses-after controlling for year and industry fixed effects-and we check the associations of capital ratio with announcement period abnormal returns, longer-term performance, as well as certain bank-specific and non-bank specific performance measures. For banks, we find that a lower capital ratio of acquirers at the time of the announcement of the M&A is significantly associated with negative announcement period abnormal returns. However, for these banks, the longer-run abnormal returns and performance are positive. The opposite is true for non-bank M&A announcements: higher equity ratios (lower leverage) of acquirers as at the time of the announcement is significantly associated with negative announcement period abnormal returns. Yet, for such non-banks, the longer-run abnormal returns and performance are positive. This shows that the market may misreact, on average, to both bank and non-bank M&A announcements based on the acquirer's leverage at the time of the announcement.
Subjects: 
mergers and acquisitions
M&A
acquirer leverage
capital ratio
equity ratio
bank M&As
non-bank M&As
announcement period returns
post-announcement returns
post M&A performance
JEL: 
G34
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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