Uncertainty and Misvaluation? New Evidence on Determinants of Merger Activity from the Banking Industry

SMC Author

Kevin Okoeguale

SMC Affiliated Work

1

Status

Faculty

School

School of Economics and Business Administration

Department

Finance

Document Type

Article

Publication Date

2016

Publication / Conference / Sponsorship

The Financial Review

Description/Abstract

We use data from the past 30 years of takeover activity in the U.S. banking industry to test competing neoclassical and misvaluation merger theories. Test results are consistent with evidence in the literature that merger activity is significantly related to both structural industry change and stock price misvaluation. Our primary contribution is to show that changes in misvaluation reflect a rise in industry-wide risk taking and that increases in risk originate from changes in industry structure due to deregulation. A measure of bank risk taking subsumes the power of stock price misvaluation to explain subsequent merger activity.

Scholarly

yes

Peer Reviewed

1

DOI

10.1111/fire.12099

Volume

51

Issue

2

First Page

225

Last Page

261

Disciplines

Business | Economics

Comments

http://onlinelibrary.wiley.com/doi/10.1111/fire.12099/full

Original Citation

Loveland, R. & Okoeguale, K. (2016). Uncertainty and misvaluation? New evidence on determinants of merger activity from the banking industry. The Financial Review, 51, 225-261. Doi: 10.1111/fire.12099

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