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The Gains from Takeover Deregulation: Evidence from the End of Interstate Banking Restrictions
Author(s) -
Brook Yaron,
Hendershott Robert,
Lee Darrell
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00087
Subject(s) - deregulation , consolidation (business) , limiting , insider , business , banking industry , monetary economics , mergers and acquisitions , financial system , economics , accounting , finance , market economy , political science , law , mechanical engineering , engineering
This paper uses interstate banking deregulation to explore the benefits of takeover deregulation and how these benefits are distributed across different firms. We find large and significant abnormal returns around the Interstate Banking and Branching Efficiency Act of 1994 which imply it created $85 billion of value in the banking industry. Consistent with an active market for corporate control allowing beneficial consolidation and providing needed discipline, there is a strong negative relationship between banks' abnormal returns and their prior performance. Consistent with managerial entrenchment limiting takeover discipline, banks with higher insider ownership, lower outside block ownership, and/or less independent boards have lower abnormal returns.