The determinants of mergers and acquisitions in banking

This paper investigates the determinants associated with the likelihood of a bank\r\nbecoming involved in a merger or an acquisition. Using a multinomial logistic regression\r\nand a Cox regression with time-dependent covariates, we investigate the determinants of\r\nbeing a target or an acquirer from a sample of 777 deals involving EU acquirers and 312\r\nglobal targets over the period of 1991 to 2006. Both the multinomial logistic and Cox\r\nregressions identify the same determinants associated with becoming acquirers or targets. A\r\nhigher likelihood of becoming an acquirer exists for larger banks with a history of high\r\ngrowth, greater cost X-efficiency, and lower capitalization. In contrast, banks are more likely\r\nto be targets if they have lower free cash flows, are less efficient, are relatively illiquid, and\r\nare under-capitalized. But, the predictive power of the two regressions is different as the\r\nmultinomial logistic regression outperforms the Cox regression when predicting the likelihood\r\nof becoming an acquirer.