Market Misreaction? Leverage and Mergers and Acquisitions

Using a large database of U.S. mergers and acquisitions (M&As) announced from 2010 through 2017, we examine the effects capital ratio (leverage) on announcement period stock price reaction as well longer-term returns performance, for banks, making comparisons with non-banks. We compare reactions (computed in different ways) lower (lower than sample median) capitalized banks non-banks that higher confirm our results using multivariate analyses—after controlling year industry fixed effects—and check associations abnormal returns, certain bank-specific non-bank specific performance measures. For find acquirers at time M&A is significantly associated negative returns. However, these longer-run are positive. The opposite true announcements: equity ratios leverage) Yet, such non-banks, This shows market may misreact, average, to both bank announcements based acquirer’s leverage announcement.