Returns to bidders are examined for 108 bank acquisitions over the 1981-1987 period. These returns provide evidence on the conflict-of-interest hypothesis and the hubris hypothesis, both of which predict negative returns to bidders, versus the shareholder wealth maximization model that predicts positive (or at least non-negative) returns. Further evidence on these hypotheses is provided from the returns on 18 defensive acquisitions. Consistent with the conflict-of-interest and hubris hypotheses, announcement period returns are negative and statistically significant both for interstate and intrastate acquisitions. However, bidder returns to interstate bank acquisitions do not differ significantly from intrastate mergers.
This article examines the returns to bidders in bank acquisitions over the July 1981 through December 1987 period and focuses on the issue of whether returns differ for interstate as compared to intrastate acquisitions. The analysis is limited to post-June 1981 acquisitions since it has been shown elsewhere (see Dubofsky and Fraser, 1988) that the market for corporate control in banking was altered by two mid-1981 district court decisions.1 Moreover, virtually all interstate acquisitions took place after this date. The analysis is further restricted to bidder returns since the positive returns earned by targets has been documented in numerous studies (see Hawawini and Swary, 1989). Restriction of the sample to bidders also provides for a larger potential sample for analysis since bidders are generally larger than targets and are more likely to have publicly traded equity securities.
The market for corporate control in the banking industry may have been further affected by the actions of individual states to allow acquisitions of home-state banking organizations by out-of-state bank holding companies (Black, Fields, and Schweitzer, 1990;Laderman and Pozdena, 1991). While in 1980 only one state (Maine) permitted interstate banking, by 1988 only five states (Hawaii, Iowa, Kansas, Montana, and North Dakota) did not permit interstate acquisitions (Amel and Jacowski, 1989). Reflecting *The authors thank two anonymous referees for helpful comments and suggestions.