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The effect of barriers to entry on bank shareholder wealth: implications for interstate banking

Article Abstract:

Changes in branching and holding company regulations in Pennsylvania were examined in two statistical tests to learn in what way such changes affect the premium over book value paid when a bank is acquired. Two scenarios were considered: the 'excess demand' view and the 'barriers-to-entry' view. The results provided evidence in support of the 'barriers-to-entry' view, by which geographic barrier elimination results in an acquired bank being less able to extract an economic rent from the acquiring bank, so that there is a decline in the value of the acquired bank's shareholder wealth.

Valuation, Pennsylvania, Barriers to entry (Industrial organization), Barriers to entry, Bank stocks

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Intermarket bank expansions: implications for interstate banking

Article Abstract:

The long-term (10-year) effects of outside mergers into metropolitan banking markets were analyzed using a sample of statewide medium-size standard metropolitan statistical areas (SMSAs). The percentage size of the acquired banks were used as merger variables. Results showed that mergers below the 15 percent market share decrease concentration, and mergers over that amount increase concentration. De novos reduce concentration over a period of time. These results suggest that regulatory policy or guidelines might be desirable to control these effects.

Models, Bank mergers

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