An independently managed site at the Wharton School of the University of Pennsylvania . If consolidation does in fact lead to performance gains, then shareholder wealth can be increased. On the other hand, if difficulties in consolidating merger entities are sufficiently great, then mergers may lead to a less profitable and valuable banking industry. Although theoretically possible, merger gains may be difficult to achieve in practice.
Most academic studies follow one of two distinct approaches in evaluating merger-related gains.
The first approach compares the performance of institutions based on accounting data before and after the merger, to determine whether consolidation results in gains. The second approach evaluates the stock market reaction to merger announcements. By and large, the merger literature concludes that consolidation, on average, does not lead to significant performance gains or overall shareholder wealth creation. This paper combines both approaches found in the literature by examining whether accounting and market data yield consistent implications regarding gains achieved in a sample of 49 mergers involving publicly traded institutions that merged from 1982 to 1991. In addition to analyzing performance changes and abnormal returns, the cross-sectional behavior of these two measures is examined.