What Drives Acquisitions in the EU Banking Industry? The Role of Bank Regulation and Supervision Framework, Bank Specific and Market Specific Factors

We study the determinants of commercial bank acquisitions that occurred over the period 1997-2002 in the European Union single market, by evaluating the impact of bank-specific measures, such as size, growth and efficiency of banks, and external influences reflecting industry level differences in the regulatory and supervision framework, market environment and economic conditions. Our empirical analysis involves multinomial logit estimation at various levels in order to identify the characteristics that most consistently predict targets and acquirers from a sample of over 1400 commercial banks. The overall results indicate, relative to banks that were not involved in the acquisitions during 1997-2002, that (i) targets and acquirers were significantly larger, less well capitalized and less efficient in terms of expenses management, (ii) targets were less profitable with lower growth prospects, and acquirers more profitable with higher growth prospects, (iii) external factors have affected targets and acquirers differently, and their effects have not been consistent or robust to sample size changes