The value effects of bank mergers and acquisitions

The banking industry has experienced an unprecedented level of consolidation on a belief that gains can accrue through expense reduction, increased market power, reduced earnings volatility, and scale and scope economies. A review of the literature suggests that the value gains that are alleged have not been verified. The paper then seeks to address alternative explanations and reconcile the data with continued merger activity. In general, we find these explanations are rationalizations for the non existence of positive value outcomes, not alternative, testable theories. Recently, a new thread of the literature has developed which seeks to understand individual cases, looking into the process of change for a particular merger. This approach seems potentially rewarding and revealing, but what we will learn is still an open question.