Intra-industry signals embedded in bank acquisition announcements

Bank acquisitions have increased in recent years, as more banks attempt to exploit potential synergies, economies of scale, and other benefits. Numero us studies have; determined that bank acquisitions generate strong positive valuation effects for targets on average, while the evidence of the impact on acquirers is mixed. Our objectives are: (1) determine whether the annou ncement of a bank acquisition transmits intra-industry signals; (2) explain why the intra-industry effects vary across acquisition announcements; and (3) explain why the valuation effects of individual rival banks vary. We fi nd that bank acquisition announcements generate significant positive intra- industry effects, on average. The intra-industry effects of rival bank portfolios are not uniform across announcements, as they are conditioned by variables that could signal infor mation about the probability that rival banks will become takeover targets. The valuation effects of rival bank portfolios are positively related to t he valuation effects of the target banks, and inversely related to the size and prior performance of rival bank portfolios. Furthermore, the valuation effects are more favorable for individual rival banks that are ultimately acquired. To the extent that these variables reflect the probability of bei ng acquired in the future, the intra-industry effects appear to be more fav orable for acquisitions in which there is a higher probability that the cor responding rivals will become targets. Overall, investors discriminate base d on event-specific and rival bank-specific characteristics when interpreti ng the signal transmitted as a result of bank acquisitions. (C) 1999 Publis hed by Elsevier Science B.V. All rights reserved. JEL dassification: G21; G 34.