Shareholder wealth effects from mergers and acquisitions in the Greek banking industry

Transcription

1 242 Int. J. Banking, Accounting and Finance, Vol. 1, No. 3, 2009 Shareholder wealth effects from mergers and acquisitions in the Greek banking industry Constantine Manasakis Department of Applied Mathematics, University of Crete, P.O. Box 2208, Heraklion, Crete, Greece Fax: Abstract: This paper studies the stock market valuation of mergers and acquisitions in the Greek banking sector, from 1995 to 2002, using the standard event study methodology. The results suggest that the targets shareholders earned significant abnormal returns upon the announcement of both horizontal and diversifying deals. On the other hand, the bidders shareholders had significant losses in cases of horizontal and zero effects in diversifying deals. Although mergers and acquisitions in the Greek banking sector were not value-enhancing, they can be rationalised under the prism of its recent deregulation. Mergers and acquisitions helped the bidders to increase their market share along with asset value and abstain from being acquired in the short-run. For the targets, mergers and acquisitions were perceived as vehicles to ensure their survival in the European market. Keywords: mergers and acquisitions; M&As; banking; valuation effects; Greece. Reference to this paper should be made as follows: Manasakis, C. (2009) Shareholder wealth effects from mergers and acquisitions in the Greek banking industry, Int. J. Banking, Accounting and Finance, Vol. 1, No. 3, pp Biographical notes: Dr. Manasakis Constantine is currently a Visiting Assistant Professor in the Department of Applied Mathematics, University of Crete, Greece. He obtained his BA in Economics from the University of Athens (2000), his Master in Business Administration from the National Technical University of Athens (2003) and his PhD in Economics from the University of Crete (2007). As a Doctoral student, he was a Fellow of the General Secretariat of Research and Technology Ministry of Development, Greece. He has publications in refereed international journals, 15 contributions in international conferences and has also acted as referee for international journals. His research interests include: industrial organisation theory and policy, firms incentives for R&D and innovation, strategic corporate governance and valuation of mergers and acquisitions. Copyright 2009 Inderscience Enterprises Ltd.

2 Shareholder wealth effects from mergers and acquisitions Introduction As financial intermediaries, banks play an essential role in the economy by transforming assets, facilitating risk management, financing trade, enabling capital accumulation and spurring technological innovation. Figueira et al. (2007) along with Ayadi and Pujals (2005) mention that over the last two decades the structure of the European banking sector has been subject to an ongoing reconstruction process with increasing consolidation activity through mergers and acquisitions (M&As). M&As in the European banking sector have been driven by a number of factors including the integration and globalisation of financial markets, the proliferation of new financial products and services, the introduction of the euro, technological advances in the field of data processing, as well as the 1986 European Commission s programme aiming at the establishment of a single market (Nellis et al., 2000). Ayadi and Pujals (2005) identify that M&As in the EU banking sector, during the 1990s, were characterised by the emergence of national mega banks and large pan-european financial groups. These patterns have been confirmed by Figueira et al. (2007) as well. Ayadi and Pujals (2005) further argue that domestic banking mergers in Europe fulfilled their objective to cut costs whereas they failed to achieve revenues synergies; cross-border mergers instead, were proved to better exploit from revenues synergies more likely due to geographical diversification. Restricting our attention to the Greek banking industry, its deregulation was accompanied by M&As that contributed much to its evolution (Tsionas et al., 2003). The aim of the present paper is to estimate the shareholders wealth effects of M&As in the Greek banking industry, from 1995 to 2002 and compare the results to the available European evidence. The paper contributes to the relevant literature since it is the most complete attempt to examine the market reaction to announcements of completed M&As deals in the Greek relevant market. Our sample contains 20 cases of completed M&As where firstly, at least one participant was a banking firm publicly traded in the Athens Stock Exchange (ASE) at the time of the deal and secondly, the transaction led to changes in the target s control. In all cases, the bidder firm was a commercial bank. When the target firm was commercial bank too, the deal is identified as a horizontal one. When the target firm was an insurance company, or a security company, or, finally, an investment bank, the deal is identified as a diversifying one. We first estimate the wealth effects for the shareholders of the bidders and the targets, regardless the type of the deal. Then, we make a distinction between the horizontal and the diversifying deals and the wealth effects for the bidders and the targets shareholders are estimated for each type of deals. We also compare the targets wealth effects when the target was an insurance company, with the corresponding in cases where the target was an investment bank. Motivated by Cybo-Ottone and Murgia (2000), Becher (2000) and DeLong (2001), the present paper also tries to shed some light on the incentives behind the M&As activity in the Greek banking industry. We do so by testing two distinct hypotheses: the synergy hypothesis and the hubris hypothesis. If the objective of a deal is to attain synergies, the managers of both the target and the bidder are intended to maximise shareholder value through increasing market power, rationalisation of processes, taking advantage of economies of scale and scope. On the other hand, according to Roll (1986), a merger or acquisition deal may be driven by the managers perception of M&As as opportunities

3 244 C. Manasakis for private benefits through stimulating corporate growth, rather than corporate value, as the private benefits of the managers tend to grow with firm size. The evaluation of the M&As wealth effects for shareholders in the Greek banking industry has recently attracted research interest. Athanassoglou et al. (2005) estimate the stock market valuation of M&As for six acquiring and five target banks, for the period In a more recent contribution, Alexakis (2007), using models adjusted for market index movements along with autoregressive models, finds that acquisitions were associated with positive shareholder returns whenever the size of the acquired banks, compared to the acquirer, was small. We depart from the above papers in two ways: firstly, our sample is bigger and secondly, we compare our findings with the existing evidence for the wealth effects of M&As in the European banking sector. The available evidence for the wealth effects of M&As in the banking sector comes mainly from the USA. 1 Recently, the European sector has also attracted research interest (Ismaila and Davidson, 2005; Beitel et al., 2004; Beitel and Schiereck, 2001; Cybo-Ottone and Murgia, 2000; Tourani-Rad and Van Beek, 1999). A consistent finding across these studies is that the targets shareholders earned significant positive cumulated abnormal returns. Regarding the wealth effects for the bidders shareholders, existing evidence is mixed. Beitel et al. (2004), Beitel and Schiereck (2001) and Tourani-Rad and Van Beek (1999) find that abnormal returns to the bidders shareholders were not significant. In Ismaila and Davidson (2005) the returns to acquirers varied across the event windows and Cybo-Ottone and Murgia (2000) find that the bidders shareholders had gains only in the shorter event windows. M&As were also found to significantly increase the stock market value for the combined firm at the time of the deals announcement (Beitel et al., 2004; Beitel and Schiereck, 2001; Cybo-Ottone and Murgia, 2000). Using balance-sheet data for the Italian banks participating in M&As over the period , Focarelli et al. (2002) find that mergers (full integration of bidder and target banks) were driven by strategies aimed at selling more services, while acquisitions (one bank purchases a controlling stake in another bank without joining the assets of the two) were traced back to strategies based on credit management. They also find that acquisitions induced long-run increases in profitability, while for the mergers; there is no evidence of profits improvement. The rest of the paper is organised as follows. Section 2 gives a brief description of the recent changes in the Greek banking industry. Section 3 describes the sample and the methodology used. Section 4 presents the empirical analysis and results. In Section 5, the incentives behind M&As in the Greek banking sector are being investigated. Finally, Section 6 concludes the paper. 2 The deregulation of the Greek banking industry Until the mid-80s, the Greek banking industry was operating under state regulation. Tsionas et al. (2003) argue that the system of credit rules aimed at influencing the asset structure of the credit system in a way conductive to the government s economic policy priorities, such as promoting small and medium-sized enterprises and financing state-owned firms. The relevant market was strongly dominated by a small number of large state-owned banks. By the mid 1980s, the need for a flexible and market-oriented banking and financial system, along with the prospects for participating in the single European market, initiated

4 Shareholder wealth effects from mergers and acquisitions 245 efforts towards the deregulation of the Greek banking industry. Market deregulation began in 1987, and by the early 1990s, bank interest rates had been gradually liberalised and all quantitative credit restrictions and investment requirements, concerning the financing of the public industry, had been phased-out. Moreover, the Bank of Greece had authorised commercial banks to launch new financial products, such as leasing, factoring and venture capital, and specialised credit institutions were permitted to expand their activities in commercial banking. The Basic Banking Law, concerning the establishment, operation and supervision of credit institutions, incorporated the provision of the Second Banking Directive and was passed in It set out the principles of banking in the single European financial market and provided equal competitive conditions for all European banking institutions. Foreign exchange controls concerning current transactions were lifted in 1992, while capital movements were completely liberalised in May The privatisation of state-owned banks and the establishment of new, mainly small, private banks were also important developments, in the second half of the past decade, which further intensified the competition in the relevant market. However, deregulation did not lead to any significant increase in foreign presence in the banking industry, in terms of the number of banks, during the 1990s. Evidence presented by Tsionas et al. (2003) suggests that from the mid 1990s, the Greek banking market started operating under intense competition and internationalisation, compared to the past. Greek banks had to make efforts in order to increase or, at least, maintain their domestic market shares, facilitating their access to international financial markets and exploiting any possible economies of scale. M&As in the Greek banking sector, as recorded since the mid 1990s, can be perceived as a way to attain the above goals. Several Greek banks have been involved in M&As since Most of these deals concerned the domestic market, including not only banks but also non-bank financial enterprises. Some large credit institutions opted to merge with their subsidiaries with a view of restructuring their activities and cutting their operating expenses. Several banks also tried to expand or further develop their activities in industries such as bancassurance (Cybo-Ottone and Murgia, 2000), where they can profit from synergies and cross-selling by both bank networks and insurance companies. 3 The sample and the method Following Ismaila and Davidson (2005) along with Cybo-Ottone and Murgia (2000), we restrict our attention to completed M&As transactions where: firstly, at least one participant was a banking firm publicly traded in the ASE at the time of the deal and secondly, the transaction led to changes in the target s control. Twenty transactions fulfilling these criteria were identified, between 1995 and The sample is presented in the Appendix. It is worth noting that between 2003 and 2007, the stock purchases that took place in the Greek banking sector did not lead to the consolidation of the balance sheets into the parent companies books. Moreover, the purchased amounts of stocks were at levels (as percentages of the outstanding common stocks) that did not cause changes in the targets control. The evaluation of these stock purchases is beyond the scope of the present paper. In all the cases of our sample, the bidder company was a commercial bank with three-digit SIC 652. Then, the M&As deals are classified in horizontal and

5 246 C. Manasakis diversifying, according to the activity of the target firm. In horizontal M&As, the target was a commercial bank too (cases 4, 5, 7, 8, 9, 10, 12, 13, 14, 16). In cases where the target s three-digit SIC was different from 652, the deal is classified as a diversifying one (cases 1, 2, 3, 6, 11, 15, 17, 18, 19, 20). Diversifying M&As are further classified in three subcategories: in cases where the target firm was an insurance company (cases 1, 11, 19), a security firm (cases 3, 6, 15), and finally, an investment bank (cases 2, 17, 18, 20). In the above 20 cases, the bidders were publicly traded in the ASE, with the exception of cases 5 and 10, while the target firms were listed in half of the cases. A final classification considers the target firms: in most cases the target was a domestic firm, but there are also cases (4, 12, 14 and 19) where the target firm was a foreign one, with a network of branches in Greece. In order to measure the effects of the M&As announcements on the share prices of the participants, we use the standard event study methodology (Brown and Warner, 1980; 1985) applied in the bulk of the literature concerning the European banking sector (Ismaila and Davidson, 2005; Beitel et al., 2004; Beitel and Schiereck, 2001; Cybo-Ottone and Murgia, 2000; Tourani-Rad and Van Beek, 1999). Firstly, for each deal, the announcement date (that is the event date t 0 ), is identified. The announcement date was the first public offer from the bidder bank to the target or the first joint announcement (executive boards of both participants) of the agreement to go forward the integration. The announcement dates were found from the bidders press releases to the ASE. Then, the event window [T 1, T 2 ] with t 0 [T 1, T 2 ] is determined. In order to reach robust results, three different event windows are used, in particular, ±5, ±10 and ±20 days from the event date. 3 Given security i s observed return (taking account of dividends and capital changes) for day t(r it ), the third step is to estimate the market model ( Rˆ ˆ ˆ it = ai + βi Rmt + eit ) for a period covering day 220 to day 21 from t 0. In line with DeLong (2001), R mt is the return on the general market index for day t. In cases where only one participant was publicly traded for the full period of 220 trading days before the event, only available observations are included. The data set for the securities and the market s portfolio returns were obtained from the ASE Data Bank. For a specific event window, each day s abnormal return is then given by ARit = Rit E( Rit Xt ). R it and E( Rit X t ) are the actual and normal return respectively and X t is the conditioning information for the normal return model. AR = R E R X is transformed in equation (1): ( ) it it it t ( ˆ ˆ β ) AR = R a + R (1) it it i i mt 2 with ARit N ( 0, Var ( ARit )) and Var ( AR ) σ =. it e it We then estimate the cumulative abnormal return (CAR) for company i, over each event window, using equation (2): (, ) CAR T T i 1 2 T T 2 = AR (2) 1 it

6 Shareholder wealth effects from mergers and acquisitions with VAR CARi( T1, T2) = ( T2 T1+ 1) σ e it CARi ( T1, T2) with Z = 2 ( T T + 1) σ. To gauge statistical significance, a Z-test, 2 1 e it, is performed (Dodd and Warner, 1983). An aggregation of interest is performed across time and events. The cumulative average abnormal return (CAAR) is given by equation (3): (, ) CAAR T T 1 2 N 1 = CARi N (3) i where N is the number of firms (or events, equivalently) and N 1 2 VAR CAAR( T1, T2) = σ 2 eit N. The corresponding Z-test is CAAR ( T1, T2) Z =. 2 i ( T2 T1+ 1) σ e it We apply the event study methodology, by firstly estimating the wealth effects for the shareholders of the bidders and the targets, regardless the type of the deal, i.e., whether it was a horizontal or a diversifying one (Section 4.1). Then, we make a distinction between the horizontal and the diversifying deals and the wealth effects for the bidders and the targets shareholders are estimated for each type of deals (Sections and respectively). In the latter section, we also compare the targets wealth effects when the target was an insurance company, with the corresponding in cases where the target was an investment bank. We also try to shed some light on the incentives behind the M&As activity in the Greek banking sector. In particular, two distinct hypotheses are tested: the synergy hypothesis and the hubris hypothesis (Roll, 1986). If the objective of a deal is to attain synergies, the managers of both the target and the bidder are intended to maximise shareholder value through increasing market power, reducing costs through rationalisation, taking advantage of economies of scale and scope. The hubris hypothesis is twofold: M&As can be part of the bidder firm top management team s behaviour to stimulate corporate growth, rather than corporate value, as the private benefits of the managers tend to grow with firm size. M&As can also be the result of over-optimistic estimations in evaluating potential post-integration synergies and efficiency improvements. Houston and Ryngaert (1994) and Cybo-Ottone and Murgia (2000) argue that the incentives behind a merger or acquisition deal are traced on the combined post-integration firm s valuation. For this reason, we evaluate the market s expectations over the combined post-integration gains resulting from the deal. Following Cybo-Ottone and Murgia (2000), the total cumulated abnormal returns (TCAR) for each deal are estimated as a weighted sum of the bidder s and target s Cumulated Abnormal Returns according to equation (4): MVB CARB + MVT CART TCARi ( T1, T2) =. MV + MV B T MV B and MV T is the value of the bidder and target firm respectively, 30 days before the event date (Becher, 2000). Additionally, CAR B and CAR T are the CARs for the bidder and (4)

7 248 C. Manasakis the target firm respectively over the ±5, ±10 and ±20 days event windows. According to Houston and Ryngaert (1994): 2 2 MVB MVT i ( 1, 2) = B + T MVB + MVT MVB + MVT MVB MVT + 2 ρbt MVB + MVT MVB + MVT Var ( CARB) Var ( CART ) VAR TCAR T T CAR CAR with ρ BT being the correlation between the bidder s and target s market model residuals for estimation of marked model prior to the event date. The corresponding Z-test is TCARi ( T1, T2) Z =. Var TCARi ( T1, T2) If attaining synergies was the objective of a deal, we expect TCAR to be positive. On the contrary, if a merger deal was motivated by hubris, TCAR is expected to be either zero or negative. 4 Results 4.1 Target versus bidding firms Evidence presented in Panel A of Table 1 suggests that M&As deals in the Greek banking sector had no wealth effects for the bidders shareholders. This is a consistent finding across the three different event windows. With respect to the available European evidence, Beitel and Schiereck (2001) along with Beitel et al. (2004) and Tourani-Rad and Van Beek (1999), also find that ARit to the bidders shareholders were not significant. On the contrary, Ismaila and Davidson (2005) find that the returns to acquirers, in the ±2 days event window, were 0.18%, significant at the 1% level. Similarly, Cybo-Ottone and Murgia (2000) report that acquiring banks showed a significant and positive market revaluation in the shorter event windows. Findings presented in Panel B of Table 1 indicate that M&As had positive and highly significant effects for the targets shareholders. For the ±5 days event window, the targets shareholders earned about 20% significant CAARs, with CAAR increasing in the duration of the event window, reaching about 34.6% for the ±20 days one. These results are in line with the bulk of the European evidence (Ismaila and Davidson, 2005; Beitel et al., 2004; Beitel and Schiereck, 2001; Cybo-Ottone and Murgia, 2000; Tourani-Rad and Van Beek, 1999). Evidence presented here coincides with the bulk of the relevant literature. Röller et al. (2001), surveying an extended series of papers, conclude that on average, bidders shareholders have no gains while the average target shareholder gain varies between 20% 35%.

8 Shareholder wealth effects from mergers and acquisitions 249 Table 1 Cumulative average abnormal returns Panel A Panel B Bidder firms Target firms Event window CAAR t St. sign. Event window CAAR t St. sign. ±5 3,367 1,813 ±5 20,020 6,063 *** ±10 3,548 1,402 ±10 26,426 5,792 *** ±20 0,691 0,201 ±20 34,614 5,430 *** Notes: ***St. sign. at 1%; **St. sign. at 5% and *St. sign. at 10%. The table presents results of the event study for a sample of 18 bidders (Panel A) and eight targets (Panel B) from 20 deals. Abnormal returns are computed individually for Bidders and Targets with the OLS market model using for each deal the General Market index. Regression parameters are estimated from t = 220 to t = 21, where t = 0 is the day the deal was initially announced in the ASE. Tests of significance are calculated from standardised abnormal returns using the Dodd and Warner (1983) method. 4.2 Horizontal versus diversifying M&As M&As included in our sample have been classified in horizontal and diversifying deals, according to the activity of the participating firms. Becher (2000) argues that horizontal M&As between commercial banks can create value through the increase of market power and economies of scale. Diversifying M&As, where only the bidder firm is a commercial bank, can create value through the expansion of the services offered and the formation of an effective internal capital market, lowering the cost of capital. In the next two subsections, we study the effects of the relatedness of the M&As participants on shareholders wealth Horizontal M&As Findings presented in Panel A of Table 2 suggest that horizontal M&As deals caused almost 9.8% losses for the bidders shareholders, significant at the 1% level. However, these losses decrease in the expansion of the event window. It should also be mentioned that the bidders losses are sensitive to whether the target firm was publicly traded in the ASE. In cases where the target firm was publicly traded, the bidders had significant losses about 15.7% for the ±5 days event window, with losses decreasing in the duration of the window. In contrast to this, for cases where the target firm was not traded, the bidders had neither gains nor losses. Regardless of the potential economies of scale and the certain market share increase, the above results (consistent with the findings of Cybo-Ottone and Murgia, 2000) express the possible threat that bidders faced, of losing partially the control over the management of the post-integration firm, given that the target firm was also listed in the ASE. Listed targets in the ASE were perceived as relatively strong competitors. In general, we conclude that for the horizontal M&As, results for bidders are sensitive to the duration of the event window and to whether the target firm was listed in the ASE or not. On the other hand, the targets shareholders had considerable gains 19% for the ±5 days event window, with CAAR increasing in the duration of the window, reaching 40% for the ±20 days window, all significant at the 1% level. Evidence presented in Panel B of

9 250 C. Manasakis Table 2 suggests that the targets shareholders perceived the horizontal M&As deals as opportunities to increase profits and dividend yields. Results for the targets shareholders in horizontal M&As have to be considered under the prism of the recent deregulation and the subsequent exposure of Greek banks to the highly competitive global banking and financial services sector. These changes made clear that the Greek commercial banks, although medium-sized for the domestic banking sector, were highly threatened if they were to choose a standing-alone strategy in the European market. Thus, targets shareholders perceived M&As as a vehicle to strengthen their position in the Greek market and ensure their survival in the European market. Table 2 CAAR in horizontal M&A deals Panel A Panel B Bidder firms Target firms Event window CAAR t St. sign. Event window CAAR t St. sign. ±5 9,816 2,813 *** ±5 19,075 4,067 *** ±10 8,237 1,079 ±10 27,532 4,249 *** ±20 4,432 0,734 ±20 40,637 4,488 *** CAAR for bidder firms Publicly traded target firm Not publicly traded target firm Event window CAAR t St. sign. Event window CAAR t St. sign. ±5 15,719 3,526 *** ±5 3,912 0,729 ±10 16,455 2,671 ** ±10 0,019 0,003 ±20 9,282 1,078 ±20 1,489 0,144 Notes: ***St. sign. at 1%; **St. sign. at 5% and *St. sign. at 10%. The table presents results of the event study for a sample of eight bidders (Panel A) and five targets (Panel B) from ten horizontal deals where the bidder and the target were commercial banks with three-digit SIC 652. Abnormal returns are computed individually for bidders and targets with the OLS market model using for each deal the general market index. Regression parameters are estimated from t = 220 to t = 21, where t = 0 is the day the deal was initially announced in the ASE. Tests of significance are calculated from standardised abnormal returns using the Dodd and Warner (1983) method Diversifying M&As Let us now examine the shareholders wealth effects of the diversifying M&As deals in the Greek banking sector. Findings presented in Panel A of Table 3 suggests that diversifying M&As had neither positive nor negative wealth effects for the bidders shareholders. This implies that the bidder banks shareholders did not foresee any profits increase through cross-products deals, regardless of the type of the target firm. Evidence by Cybo-Ottone and Murgia (2000) documents wealth gains on the announcement of a diversifying merger or acquisition and especially in cases of bancassurance. Regarding the targets shareholders, findings presented in Panel B of Table 3 indicate significant wealth gains, varying from 22% to 24% for the different event windows. The explanation of this result is similar to the one given above for the targets shareholders in horizontal M&As. In addition to that, CAAR for the shareholders of insurance firms

10 Shareholder wealth effects from mergers and acquisitions 251 (cases 1, 11, 19) and investment banks (cases 2, 17, 18, 20) are not statistically different from each other. Although results for the bidders shareholders in cases of diversifying M&As are inconclusive in the literature, the results documented here are in line with those reported by Cybo-Ottone and Murgia (2000). Table 3 CAAR in diversifying M&A deals Panel A Panel B Bidder firms Target firms Event window CAAR t St. sign. Event window CAAR t St. sign. ±5 2,119 0,979 ±5 21,910 6,875 *** ±10 0,241 0,092 ±10 24,313 5,499 *** ±20 6,470 1,601 ±20 22,570 3,668 *** Notes: ***St. sign. at 1%; **St. sign. at 5% and *St. sign. at 10%. The table presents results of the event study for a sample of ten bidders (Panel A) and two targets (Panel B) from ten diversifying deals where the bidder was a commercial bank with three-digit SIC 652 while the target was an insurance company, a security firm or an investment bank. Abnormal returns are computed individually for bidders and targets with the OLS market model using for each deal the general market index. Regression parameters are estimated from t = 220 to t = 21, where t = 0 is the day the deal was initially announced in the ASE. Tests of significance are calculated from standardised abnormal returns using the Dodd and Warner (1983) method. 5 Investigating the incentives behind M&As In this part of the paper, the incentives behind the M&As activity in the Greek banking sector are investigated. We do so by evaluating the market s expectations over the combined post-integration gains resulting from the deal, using equation (4) for the three event windows. Detailed results are presented in Table 4. A consistent finding is that neither horizontal nor diversifying M&As deals in the Greek banking sector had any effects on the combined post-integration firm s value. Negative abnormal returns to the bidders shareholders offset positive abnormal returns to the targets, implying a transfer of wealth. Our findings are in contrast to the available European evidence, suggesting that M&As increased the combined firm s market value at the time of the deals announcement (Ismaila and Davidson, 2005; Beitel et al., 2004; Beitel and Schiereck, 2001; Cybo-Ottone and Murgia, 2000). In order to rationalise our results and interpret their deviation from the existing European evidence, we have to identify the differences between the Greek banking sector and the more mature national banking sectors in Europe. While the latter were under a significant re-shaping, for more that the last two decades (Figueira et al., 2007; Ayadi and Pujals, 2005), the Greek one started operating under intense competition and internationalisation from the mid 1990s (Tsionas et al., 2003). This gap in the degrees of competitiveness and internationalisation makes the Greek banking industry to be a special case in Europe.

11 252 C. Manasakis Table 4 Total CAAR Event window TCAR t St. sign. Case 1 ±5 4,719 1,092 ±10 4,808 0,805 ±20 3,987 0,447 Case 8 ±5 1,906 0,336 ±10 5,986 0,765 ±20 8,494 9,797 Case 9 ±5 0,141 0,035 ±10 4,481 0,809 ±20 3,162 0,408 Case 13 ±5 33,567 2,272 * ±10 36,818 36,818 ±20 42,909 42,909 Case 16 ±5 0,206 0,032 ±10 0,603 0,069 ±20 0,489 0,040 Case 17 ±5 5,307 1,414 ±10 11,371 2,193 ** ±20 16,136 2,227 ** Case 18 ±5 1,803 0,530 ±10 0,411 0,087 ±20 2,640 0,402 Notes: ***St. sign. at 1%; **St. sign. at 5% and *St. sign. at 10%. The table presents results of the event study for a sample of seven deals where bidders and targets were simultaneously listed. Abnormal returns are computed individually for bidders and targets with the OLS market model using for each deal the general market index. Regression parameters are estimated from t = 220 to t = 21, where t = 0 is the day the deal was initially announced in the ASE. Value-weighted abnormal returns (TCARi) are computed using the value of total assets (Equity) at 30 days before the deal s announcement date. Tests of significance are calculated from standardised abnormal returns employing the Dodd and Warner (1983) method.

12 Shareholder wealth effects from mergers and acquisitions 253 In this environment, the Greek banks had to strengthen their position in the domestic market and follow defensive strategies in the international market, for the short run. Exploiting any possible economies of scale seemed to be a medium or long run goal. For this purpose, Greek banks followed strategies of internal and external growth. Internal growth strategies contained the expansion of their network of branches and investments in information and communication technologies. External growth strategies contained horizontal and diversifying M&As. Thus, M&As in the Greek banking sector were driven by strategic rather than value-enhancing incentives. They can be rationalised as the bidders strategic move to increase their market share and asset value and abstain from being acquired in the short-run. Even if they were to be acquired in future, their relatively high value could allow them to charge a relatively high purchase price. For the targets, M&As were perceived as vehicles to ensure their survival in the European market. 6 Conclusions Over the last two decades the structure of the European banking sector has been subject to an ongoing reconstruction process with increasing consolidation activity through M&As. In this environment, the deregulation of the Greek banking sector was followed by a serious number of M&As during the second half of the last decade. The aim of the present paper was to evaluate the shareholders wealth effects of M&As in the Greek banking industry, from 1995 to 2002, using the standard event study methodology. The sample contained all these cases of M&As where at least one of the participants was a banking firm that was publicly traded in the ASE at the time of the deal s announcement. Our results suggest that the targets shareholders had highly significant gains, especially in horizontal M&As. On the contrary, the mean wealth effects for the bidders shareholders were not statistically different from zero. M&As in the Greek banking sector had no effects on the combined post-integration firm s value. Negative abnormal returns to bidders offset positive abnormal returns to targets, implying a transfer of wealth. This implies that M&As in the Greek banking industry were not value-enhancing. These deals can rather be seen as external growth strategies whose goal was to strengthen the position of the participants in the domestic market and help them become more tenacious in the fiercely competitive international environment. We are aware of the limitations that the standard event study methodology induces. Although it makes our results comparable with the European evidence, it does not incorporate recent innovations in testing results (e.g., Boehmer et al., 1991). For this reason, an interesting direction for future research would be the investigation of the drivers of wealth effects to the shareholders of the targets, the bidders, and to the combined entity, along with the implementation of recent tools for checking the robustness of our results.

13 254 C. Manasakis Acknowledgements The author wishes to thank the editor Fotios Pasiouras, two anonymous referees for valuable comments and suggestions and participants at the 2004 Hellenic Finance & Accounting Association (H.F.A.A.) Conference, Athens, December 2004, for their helpful comments and suggestions. The author is also grateful to Christos Cabolis, Angelos Kanas and Jrissy Motis for valuable discussions and helpful comments. Financial support under the Grant Scheme PENED 2003 (Grant No: 01D332), by the General Secretariat for Research and Technology of the Greek Ministry of Development, is gratefully acknowledged. References Alexakis, P. (2007) Bank acquisitions and shareholder returns, International Journal of Financial Services Management, Vol. 2, pp Athanassoglou, P.P., Assimakopoulos, J.G. and Georgiou, E.A. (2005) The effect of merger and acquisition announcements on bank returns in Greece, Bank of Greece, Economic Bulletin, Vol. 24, pp Ayadi, R. and Pujals, G. (2005) Banking consolidation in the EU, overview and prospects, CEPS Reports in Finance and Banking, No. 34. Becher, D.A. (2000) The valuation effects of bank mergers, Journal of Corporate Finance, Vol. 6, pp Beitel, P. and Schiereck, D. (2001) Value creation at the ongoing consolidation of the European banking market, Working Paper, Institute of Mergers and Acquisitions (IMA), No. 05/01. Beitel, P., Schiereck, D. and Wahrenburg, M. (2004) Explaining M&A success in European banks, European Financial Management, Vol. 10, pp Boehmer, E., Musumeci, J. and Poulsen, A. (1991) Event-study methodology under conditions of event-induced variance, Journal of Financial Economics, Vol. 30, pp Brown, S.J. and Warner, J.B. (1980) Measuring security price performance, Journal of Financial Economics, Vol. 8, pp Brown, S.J. and Warner, J.B. (1985) Using daily stock returns, the case of event studies, Journal of Financial Economics, Vol. 14, pp Cybo-Ottone, A. and Murgia, M. (2000) Mergers and shareholder wealth in European banking, Journal of Banking & Finance, Vol. 24, pp DeLong, G.L. (2001) Stockholder gains from focusing versus diversifying bank mergers, Journal of Financial Economics, Vol. 59, pp Dodd, P. and Warner, J.B. (1983), On corporate governance: a study of proxy contests, Journal of Financial Economics, Vol. 11, pp Figueira, C., Nellis, J. and Schoenberg, R. (2007) Travel abroad or stay at home? Investigating the patterns of bank industry M&As in the EU, European Business Review, Vol. 19, pp Focarelli, D., Panetta, F. and Salleo, C. (2002) Why do banks merge?, Journal of Money, Credit and Banking, Vol. 34, pp Houston, J.F. and Ryngaert, M.D. (1994) The overall gains from large bank mergers, Journal of Banking and Finance, Vol. 18, pp Ismaila, A. and Davidson, I. (2005) Further analysis of mergers and shareholder wealth effects in European banking, Applied Financial Economics, Vol. 15, pp Nellis, J.G., McCaffery, K.M. and Hutchinson, R.W. (2000) Strategic challenges for the European banking industry in the new millennium, International Journal of Bank Marketing, Vol. 18, pp

14 Shareholder wealth effects from mergers and acquisitions 255 Roll, R. (1986) The hubris hypothesis of corporate takeovers, Journal of Business, Vol. 59, pp Röller, L.H., Stennek, J. and Verboven, F. (2001) Efficiency gains from mergers, The Efficiency Defence and the European System of Merger Control, Reports and Studies of the Directorate for Economic and Financial Affairs, Vol. 5. Tourani-Rad, A. and Van Beek, L. (1999) Market valuation of European bank mergers, European Management Journal, Vol. 17, pp Tsionas, E.G., Lolos, S.E. and Christopoulos, D.K. (2003) The performance of the Greek banking system in view of the EMU: results from a non-parametric approach, Economic Modelling, Vol. 20, pp Notes 1 Becher (2000), surveying the early evidence for the USA, documents that target firms gained about 20% and bidder firms roughly broke even. The author also examines the valuation effects of 558 bank mergers from in the USA and finds that bank M&As did create wealth. On average, over a 36-day event window, targets shareholders gained over 22%, bidders broke even and combined firms gained 3%. DeLong (2001) presents a sample consisting by 280 domestic M&As, announced from 1988 to 1995 between publicly traded firms. He classifies M&As according to the activity and geographic similarity (focus) or dissimilarity (diversification) of participants and finds that only M&As that were focused both on geography and on activities earned a positive 3% return, while all other cases neither created nor destroyed shareholder wealth. 2 Directive 89/646/EEC of 15/12/1989 EC Official Journal N.386 of 30 December Regarding the duration of the event window, when it is narrow the measurement error may be substantial. On the other hand, increasing the length of the window, the noise-to-signal ratio increases too and measure the impact of the event on share price becomes difficult. In order to overcome this weakness, our analysis is undertaken under three different event windows.

15 256 C. Manasakis Appendix The sample and the event dates Case Bidder firm (commercial bank in all cases) Target firm Event date 1 Commercial Bank of Greece Metrolife (insurance services) 17/11/ Commercial Bank of Greece Commercial Capital 8/12/1995 (investment bank) 3 Bank of Piraeus Sigma Finance (financial services) 10/7/ Bank of Piraeus Chase Manhattan Bank (Greece) 23/10/1997 (commercial bank) 5 Egnatia Bank Bank of Central Greece 7/2/1998 (commercial bank) 6 Bank of Piraeus ABC Professional Services 27/3/1998 (financial services) 7 National Bank of Greece National Housing Bank 17/4/1998 (commercial and housing bank) 8 Bank of Piraeus Macedonia and Thrace Bank 6/5/1998 (Commercial Bank) 9 Alpha Credit Bank Ionian Bank of Greece 28/5/1998 (commercial bank) 10 Consolidated Eurofinance S.A. Bank of Athens (commercial bank) 17/6/ Alpha Credit Bank Ellinobretanikh 6/8/1998 (insurance services) Commercial Insurance (insurance services) 12 Bank of Piraeus Credit Lyonnais (Greece) 10/9/1998 (commercial bank) 13 Bank of Piraeus Xios Bank (commercial bank) 30/11/ Bank of Piraeus National Westminste Bank (Greece) 24/3/1999 (commercial bank) 15 Bank of Attica Hermis Finance (financial services) 24/4/ EFG Eurobank Ergo Bank (commercial bank) 4/8/ EFG Eurobank Ergasias Telesis investment bank 16/3/2001 (investment bank) 18 Bank of Piraeus National Investment Bank for Industrial Development (investment bank) 17/7/ Bank of Piraeus ING/Nationale Nederladen 21/12/2001 (insurance services) 20 National Bank of Greece ETEBA (investment bank) 22/06/2002