Bank Ownership and Control in an Emerging Market : Changes in Risk and Return

Globalization, deregulation, and European Union accession talks triggered a merger wave in Turkish banking. We investigate how this massive restructuring shaped the ownership structure, returns, and risk of target banks. Before the merger wave, 75 percent of target banks were part of a diversified holding group controlled by a Turkish family and the deals resulted in control being transferred to multinational banks. Three-day target cumulative abnormal returns (CARs) around acquisition announcements average 6 percent. News about acquisitions spread in rumors prior to formal announcements. When we cumulate abnormal returns from the date of the first rumor to the announcement, target CARs increase to 27 percent. The systematic and idiosyncratic risk of target banks significantly decreases in the three years following the successful conclusion of deals. Investors seem to have anticipated and priced the better governance practices, economies of scale and scope that a partnership with multi-national banks would bring