Evaluating the value of financial institutions acquisitions made during the financial crisis of 2008 to 2009.

Abstract

This paper examined 95 M&A transactions made from 2008 to 2009 in North America to determine if value creation existed for financial institutions acquirers during a financial crisis. Past literature has expressed contrasting views of whether value was created for these acquirers in this special situation. In this study, we employed an event study methodology and found that on average, our sampled firms exhibited a positive cumulative average abnormal return (CAAR) of 2.24% on the announcement day at a significance level of 0.001. We delved into the attributes of firms which obtained higher returns on the announcement date to identify the contributing factors. To do this, we regressed the variables of market capitalisation, tier 1 capital ratio and return on equity (ROE) of the acquirers against the announcement day CAAR to determine its significance. Our results revealed that return on equity and market capitalisation had a negative and positive relationship with announcement day CAAR respectively. However, there was no significant relationship between tier 1 capital ratio and announcement day CAAR.