THE INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994 - A WEALTH EVENT FOR ACQUISITION TARGETS

The Interstate Banking and Branching Efficiency Act (IBBEA) represente d a significant step in the deregulation of interstate banking and bra nching. The IBBEA's passage had a positive wealth effect on a sample o f large Bank Holding Companies (BHCs). Cross-sectional tests of abnorm al returns reveal that BHCs having characteristics associated with acq uisition targets and BHCs headquartered in states that prohibited inte rstate branching experienced significantly higher returns. Collectivel y, the evidence suggests that investors anticipated that the IBBEA wou ld provide for increased corporate control activities among banks and that a large portion of the BHC gains stems from the relaxation of int erstate branching restrictions. (C) 1998 Elsevier Science B.V. All rig hts reserved.