Diversification versus specialization: an event study of M&As in the European banking industry

This study examines the stock market valuation in terms of expected gains of mergers and acquisitions (M&As) amongst banks that were announced from 1991 to 2001 in 13 European markets. M&As are classified according to activity, geographic specialization or diversification. A bivariate GARCH model is used to estimate abnormal returns taking beta conditional variability into account. The results document that there is, on average, a positive and significant increase in value for the group of targets' banks. Moreover, it is found that on average there is a positive and significant market reaction for the two types of transactions: cross-product diversification and geographic specialization.