Bidder returns in interstate and intrastate bank acquisitions

Returns to bidders are examined for 108 bank acquisitions over the 1981–1987 period. These returns provide evidence on the conflict-of-interest hypothesis and the hubris hypothesis, both of which predict negative returns to bidders, versus the shareholder wealth maximization model that predicts positive (or at least non-negative) returns. Further evidence on these hypotheses is provided from the returns on 18 defensive acquisitions. Consistent with the conflict-of-interest and hubris hypotheses, announcement period returns are negative and statistically significant both for interstate and intrastate acquisitions. However, bidder returns to interstate bank acquisitions do not differ significantly from intrastate mergers.