| During the past decades, several industries have experienced a major transition with changing structure. An evidence can be seen from the US banking industry where the transition is portrayed in the form of a rapid pace of merger activity and a movement toward universal banking. The fundamental forces behind this unprecedented movement are changes in the economic and regulatory environment including products, geographic and interest rate deregulation, technological progress, improvements in bank financial conditions, and intensified competition both domestically and internationally.; The main motivation behind this accelerating pace of merger activity is for banks to maintain, and yet, increase their market power in order to survive and to maximize shareholder value. The objective is to produce a combined entity that will generate more profits in the most efficient way than can possibly be done if each merging party operates individually. To find a suitable partner for a viable combination, acquiring banks are looking for certain characteristics for which they are willing to pay premiums.; This dissertation addressed this issue by testing numerous factors affecting the magnitude of merger premiums. They are (a) bank's financial characteristics: target's profitability ratio, capital adequacy measure, target's absolute size, acquirer's absolute size, relative size between acquirer and target, efficiency ratio, and asset quality ratio of the target; (b) merger structure: managerial accounting choices; and (c) market characteristic: interstate versus intrastate mergers.; In addition to the above factors, a time variable (the date of the merger announcement), a variable process that was never utilized before in previously published research, was added to the tested model as an explanatory variable. This time variable is a proxy for a merger trend to the extent that each merger announcement.; This dissertation uses two alternative regression models with two different dependent variables (price-to-book ratio and percentage change of target's stock prices) to examine the merger data from January 1989 to July 1998. The comparison between the two models indicates that the model where the price-to-book ratio is used out performs the model that uses the percentage change of stock price as a surrogate for the merger premium.; Examination of the final premium model that has price-to-book ratio as dependent variable shows the results that profitability, capital adequacy, managerial accounting choice, synergy, and time are key factors explaining the magnitude of merger premiums. |
