| Consolidation and integration remain two of the financial service industry's most noteworthy trends. Since 1980, the U.S. banking industry has experienced a continuous, unprecedented level and pace of merger and acquisition (M&A) activity that has significantly altered banking structure and continually reshuffles the rankings of the world's largest financial service firms. But consolidation of the financial services industry is not just a banking phenomenon. This exploratory research examines the primary motivations for seventy-four bank acquisitions of publicly traded investment banks during the period from January 1, 1987 to July 2, 2001 by analyzing the market prices for these mergers. Specifically, what are the determinants of merger premiums in the investment banking industry? Key findings indicate that merger type, the price to earnings ratio and return on equity are all significantly associated with merger bid premiums. These findings are generally supportive of synergy or efficiency theory as a motivator of mergers and acquisitions in the financial services industry. |
