Journal of Banking and Finance 15 (1991) 42w8. North-Holland Bank acquisitions and ownership structure: Theory and evidence* Linda Allen Baruch College, City University A. Sinan Cebenoyan Of New York, New York, NY IOOIO, USA University of Baltimore, Baltimore, MD 21201. USA Received April 1990, linal version received October 1990 In this paper we both theoretically and empirically consider the joint nature of two owner- manager conflict resolution mechanisms: insider shareholdings, a, and shareholder concentration, 7. We Iind evidence of a signilicant entrenchment effect for high x, low y tirms. Moreover, bidder returns are found to be positive for high x. high 7 firms only. We utilize a switching of regression regimes model to solve for critical values of I and 7 that subdivide the universe of acquiring firms into separate and distinct ownership structure regimes, i.e., that deline ‘high’ vs. ‘low’ levels of z or y. 1. Introduction Are corporate acquisitions in shareholders’ interests? Despite the plethora of studies addressing this issue, there is no consensus regarding the returns to acquirers. For banking, in particular, the issue is of crucial importance. The pace of consolidation (rapid over the deregulatory 1980s) promises to pick up as further regulatory restrictions (e.g., Glass-Steagall) are eroded or repealed and as deposit insurers auction insolvent or marginally solvent institutions in their attempts to resolve the thrift crisis. However, there is no conclusive evidence on the impact of acquisitions on the value of the acquiring firm.’ *We would like to thank Yakov Amihud, Hanan Eytan, Stavros Thomadakis, and an anonymous referee for their helpful comments. Research assistance was provided by Christos Pantzalis, Gisele Giles, and Anthony Logrippa. ‘Jensen and Ruback, in their 1983 survey, cite the literature’s mixed results. For example, for non-banking acquirers, Dodd (1980) and Firth (1980) find that acquisitions reduce bidding firm value although Asquith, Bruner and Mullins (1983). Malatesta and Thompson (1985) and Dennis and McConnell (1986) lind a significantly positive abnormal return, while others [Langetieg (1978), Asquith and Kim (1982) and Eckbo (1983)J find no significant eKect. Banking studies tend to support the contention that acquisitions are value enhancing for the acquiring 0378~266/91/%03.50 0 1991-Elsevier Science Publishers B.V. (North-Holland)