Gayle L. DeLong

Stockholder gains from focusing versus diversifying bank mergers

Abstract This paper shows bank mergers that enhance value upon announcement can be distinguished from those that do not create value. I classify mergers of banking firms according to activity and geographic similarity (focus) or dissimilarity (diversification), and examine the abnormal returns to each group as a result of the merger announcement. Mergers that focus both activity and geography enhance stockholder value by 3.0% while the other types do not create value. Analysis reveals that abnormal returns upon merger announcement increase in relative size of target to bidder, but decrease in the pre-merger performance of targets.

The Effects of Cross-Border Bank Mergers on Bank Risk and Value

This paper examines the effects of cross-border bank mergers on the risk and (abnormal) returns of acquiring banks. We find that overall, the acquirers risk neither increases nor decreases. In particular, on average neither their total risk nor their systematic risk falls relative to banks in their home banking market. The abnormal returns to acquirers are negative and significant, but are somewhat higher when risk increases relative to banks in the acquirer s home country.

Learning by Observing: Information Spillovers in the Execution and Valuation of Commercial Bank M&As

We offer a new explanation for why academic studies typically fail to find value creation in bank mergers. Our conjectures are predicated on the idea that, until recently, large bank acquisitions were a new phenomenon, with no best practices history to inform bank managers or market investors. We hypothesize that merging banks, and investors pricing bank mergers, learn by observing information that spills over from previous bank mergers. We find evidence consistent with these conjectures for 216 M&As of large, publicly traded U.S. commercial banks between 1987 and 1999. Our findings are consistent with semistrong stock market efficiency.

Does Long-Term Performance of Mergers Match Market Expectations? Evidence from the US Banking Industry

There is a paradox in bank mergers. On average, bank mergers do not create value, yet they continue to occur. Using cross-sectional analysis to examine 54 bank mergers announced between 1991 and 1995, I test several facets of focus and diversification. Upon announcement, the market rewards the mergers of partners that focus their geography and activities and earnings streams. Only one of these facets, focusing earnings streams, enhances long-term performance. Two other circumstances improve long-term performance: 1) when a merger involves a relatively inefficient acquirer and 2) when partners reduce bankruptcy costs.

The Announcement Effects of U.S. versus non-U.S. Bank Mergers: Do They Differ?

Non-U.S. bank mergers are becoming an increasingly important part of the worldwide economic landscape. Are the market reactions to non-U.S. bank mergers similar to the reaction in the United States? I address this question by examining abnormal returns of publicly traded partners on the announcement of forty-one non-U.S. bank mergers and comparing the returns with a U.S. control group. I find acquirers in non-U.S. domestic bank mergers earn more and non-U.S. targets earn less than their U.S. counterparts. However, for the subset of mergers in countries with relatively well-developed stock markets, I find that partners earn similar returns. 2003 The Southern Finance Association and the Southwestern Finance Association.

A Positive Association found between Autism Prevalence and Childhood Vaccination uptake across the U.S. Population

The reason for the rapid rise of autism in the United States that began in the 1990s is a mystery. Although individuals probably have a genetic predisposition to develop autism, researchers suspect that one or more environmental triggers are also needed. One of those triggers might be the battery of vaccinations that young children receive. Using regression analysis and controlling for family income and ethnicity, the relationship between the proportion of children who received the recommended vaccines by age 2 years and the prevalence of autism (AUT) or speech or language impairment (SLI) in each U.S. state from 2001 and 2007 was determined. A positive and statistically significant relationship was found: The higher the proportion of children receiving recommended vaccinations, the higher was the prevalence of AUT or SLI. A 1% increase in vaccination was associated with an additional 680 children having AUT or SLI. Neither parental behavior nor access to care affected the results, since vaccination proportions were not significantly related (statistically) to any other disability or to the number of pediatricians in a U.S. state. The results suggest that although mercury has been removed from many vaccines, other culprits may link vaccines to autism. Further study into the relationship between vaccines and autism is warranted.

Under-Regulated and Over-Guaranteed? International Bank Mergers and Bank Risk-Taking

Weak bank supervision gives banks the ability to shift risk from themselves to supervisors. One way for banks to take advantage of weak supervisory systems is to engage in risky activities such as cross-border bank mergers. We examine whether the supervisory structure of a country influences the decision to engage in a cross-border merger by looking at the number of such mergers between OECD countries between 1985 and 2001. We also look at the change in risk profile associated with 299 individual mergers. We find that banks expand into countries that provide good business opportunities. However, once a bank decides to expand into a country, the decision to increase or decrease risk appears to be related to its home supervisory structure. Strong supervision - especially fairly priced deposit insurance - appears to mitigate moral hazard.

International Banking and the Allocation of Risk

Macroeconomic risks could magnify individual bank risk. Mitigating the influence of economy-wide risks on banks could therefore be very important to maintain a smooth-running banking system. In this paper, we explore the extent to which macroeconomic risks affect banks. We use a bank-level dataset on over 2,000 banks worldwide for the years 1995-2002 to study the effect of macroeconomic volatility, the openness of the banking system, and banking regulations on bank risks. Our measure of bank risk is the volatility of banks’ pretax profits. We find that macroeconomic volatility increases banks’ profit volatility and that international openness of the banking system lowers bank risk. We find no impact of banking regulation on profit volatility. Our findings suggest that if policymakers want to lower bank risk, they should seek to lower macroeconomic volatility as well as increase openness in the banking system.

Conflicts of Interest in Vaccine Safety Research

Conflicts of interest (COIs) cloud vaccine safety research. Sponsors of research have competing interests that may impede the objective study of vaccine side effects. Vaccine manufacturers, health officials, and medical journals may have financial and bureaucratic reasons for not wanting to acknowledge the risks of vaccines. Conversely, some advocacy groups may have legislative and financial reasons to sponsor research that finds risks in vaccines. Using the vaccine-autism debate as an illustration, this article details the conflicts of interest each of these groups faces, outlines the current state of vaccine safety research, and suggests remedies to address COIs. Minimizing COIs in vaccine safety research could reduce research bias and restore greater trust in the vaccine program.

Determinants of Cross-Border Bank Mergers: Is Europe Different?

The internationalisation of commercial banks is one of the manifestations of the globalisation of the financial services industry. One way of entering a new market is through cross-border mergers and acquisitions (M&As). In banking, M&As are a particularly important mode of entry because they make it easier to obtain access to a customer base and acquire local expertise. Yet, despite these obvious advantages, cross-border M&A activity in the financial services industry has picked up only recently, and the bulk of merger activity continues to take place at the domestic level. Efficiency barriers such as cultural differences and regulatory restrictions are likely to be responsible for this slow growth (Berger et al. 2000, Buch and DeLong 2001).