LATIN AMERICAN BUSINESS REVIEW

2022, VOL. 23, NO. 3, 255–278

[Link]

The Stock Market Reaction to Mergers and Acquisitions:

Evidence from the Banking Industry
Juan M. Lozadaa, Lina M. Cort
esa, and Daniel Vel
asquez-Gaviriab,c
a
Department of Finance, School of Economics and Finance, Universidad EAFIT, Medellin,
Colombia; bDepartment of Finance, Faculty of Economic and Administrative Sciences, Instituto
Tecnologico Metropolitano, Medellin, Colombia; cDepartment of Quantitative Economics,
Maastricht University, Maastricht, The Netherlands

ABSTRACT ARTICLE HISTORY

This paper focuses on the effect of mergers and acquisitions Received 31 October 2020
(M&As) announcements on the stocks of Latin American banks Revised 3 March 2021
and their rivals between 2000 and 2019. We evaluate two Accepted 7 May 2021
impacts of M&A announcements: impacts on cumulative
KEYWORDS
abnormal returns (CAR) and impacts on event-induced vari- Emerging markets; GARCH
ance (EIV). We use the GARCH-based event-study method, event study; Latin America;
finding that acquirers and target banks have a statistically sig- banking industry
nificant CAR and that their rivals and targets are not affected
by M&A announcements. We observe that EIV is negative for
acquirers, targets, and rivals. Finally, in a robustness exercise,
we estimate a multivariate GARCH model, finding that the
results remain qualitatively equal.

RESUMEN
Este trabajo se centra en el efecto que los anuncios de
Fusiones y Adquisiciones (M&As en la sigla en ingl
es), tienen
sobre las acciones de los bancos latinoamericanos y sus rivales
entre 2000 y 2019. Evaluamos dos impactos de los anuncios
M&A: los impactos sobre los retornos anormales acumulados
(CAR en la sigla en ingl
es), y los impactos sobre la varianza
inducida por eventos (EIV en la sigla en ingl
es). Empleamos el
m
etodo de estudio de eventos basado en GARCH, encon-
trando que los adquirentes y los bancos objetivos tienen un
CAR estad
ısticamente significativo y que sus rivales y objetivos
no se ven afectados por los anuncios de fusiones y adquisi-
ciones. Notamos que el EIV es negativo para los adquirentes,

ltimo, en un ejercicio de robus-
los objetivos y los rivales. Por u
tez, estimamos un modelo GARCH multivariante, encontrando
que los resultados siguen siendo cualitativamente iguales.

RESUMO
No presente trabalho enfocamos o efeito dos an
uncios de
Fuso~es e Aquisiço
~es (M&As na sigla em ingl^es) nas aço
~es de
bancos da Am
erica Latina e de seus rivais, entre 2000 e 2019.
Avaliamos dois impactos de anu
ncios de M&A: o impacto no
retorno anormal acumulado (CAR na sigla em ingl^es) e o
impacto na vari^ancia introduzida por evento (EIV na sigla em
ingl^es). Usando o m
etodo de estudo de eventos baseado em

CONTACT Lina M. Cort
es lcortesd@[Link] Universidad EAFIT, Carrera 49 No 7 Sur-50,

Medellin, Colombia.
ß 2021 Taylor & Francis Group, LLC
256 J. M. LOZADA ET AL.

modelo GARCH, constatamos que os bancos alvo e os adquir-

entes apresentam um CAR estatisticamente significativo, e que
seus rivais e alvos n~ao s~ao afetados pelos an
uncios de M&A.
Observamos que a EIV
e negativa para adquirentes, alvos e
rivais. Por fim, no exerc
ıcio de robustez, estimamos um mod-
elo GARCH com mu
ltiplas vari
aveis e verificamos que os resul-
tados permaneceram qualitativamente iguais.

Introduction
In the past few decades, the banking industry has consolidated mainly
through mergers and acquisitions (M&As) (Amel et al., 2004; Weiß et al.,
2014). From the 1980s to the 2010s, the banking industry’s M&A activity,
measured by the average number of announcements per year, grew 37%
worldwide.1 Consequently, both academics and practitioners have become
interested in this topic (Buch & DeLong, 2004; Di Giovanni, 2005).
Therefore, the literature has evaluated two impacts of such deals: (1) those
on acquirers and target banks (e.g., efficient gain, abnormal returns, bank
risk profile) and (2) those on their rivals (e.g., market power and risk
changes).2 Understanding how markets react to these events is essential for
both shareholders and regulators. Shareholders demand information allow-
ing them to comprehend whether M&As destroy or generate value to make
better investment decisions. Furthermore, policymakers need to know how
business decisions can affect the performance of the market.
Most studies focused on developed economies (Lebedev et al., 2015).
However, empirical evidence shows that the impact of M&As on company
stocks can be different in emerging and developed countries. For instance,
Goddard et al. (2012) study the effect of M&A announcements on acquirer
shareholder wealth, indicating the banks’ M&As create value in the USA
and Europe, while in Latin America and Asia, such deals are not. One
advantage of focusing on Latin American M&As is the variety of macroeco-
nomic features, business environment, and industry-specific advantages in
a region with similarities in terms of legal systems, business culture, and
governance issues across countries. Thus, Latin America offers an ideal
region for analyzing M&A activity. These conditions can generate poten-
tially different results between emerging and developed economies (Burns
& Liebenberg, 2011; Cort
es et al., 2017; Kinateder et al., 2017; Lebedev
et al., 2015; Pablo, 2013).
Therefore, this paper contributes to the literature by focusing on M&A
activity by Latin American banks. In this region, M&A activity in the bank-
ing industry, measured by the average number of announcements per year,
grew by 116.5%3 between the 1980s and the 2010s. Nevertheless, the effects
 LATIN AMERICAN BUSINESS REVIEW 257

may be different in emerging economies. One relevant issue in M&As is

the effect of announcements in terms of creating value for shareholders
and the possible impacts of announcements on stock volatility (Elyasiani
et al., 2016; Hankir et al., 2011; Houston & Ryngaert, 1994; Hutson &
Kearney, 2001).4
Accordingly, this paper has two goals: first, to quantify whether M&A
announcements generate abnormal returns for the acquirer, the target, and
rival banks. Second, to measure whether M&A announcements create mar-
ket volatility due to evidence about acquirers, targets, and rivals. Although
the literature focuses on the effects of the M&A announcements on share-
holder wealth for acquirers, targets, and rivals, the impact on volatility has
been less explored. In fact, to our knowledge, this is the first paper to study
the effect of M&As on volatility in the banking industry in Latin
American countries.
We use a GARCH event study to estimate the impact of M&A
announcements on the variance (Wang et al., 2002). We model bank stock
returns for the conditional mean and for the conditional variance. For the
first, we use the market model plus a dummy variable to estimate cumula-
tive abnormal returns (CAR). We use a GARCH(1,1) model plus a dummy
variable to estimate the event-induced variance (EIV) for the conditional
variance. The latter allows us to identify how the financial market reacts to
M&A announcements and the individual effect it generates on the acquirer,
the target, and rivals’ stocks. In general, we conduct two cross-sectional
tests to identify whether the average cumulative abnormal return (ACAR)
and the average event-induced variance (AEIV) of each country are signifi-
cantly different from zero.
Finally, we estimate a multivariate GARCH model for three events in the
sample in which both the acquirer and the target are publicly owned banks.
We seek to isolate co-movements among bank returns generated by indus-
try dynamics to show that the EIV generated for M&A announcements
does not change due to the possible spillover of volatility between the
acquirer and the target.
In general, we find that at the country level, the ACAR cross-sectional
test is not significant. Nevertheless, we observe that CARs of acquirers are
significant in 83% of the cases, 49% have a positive sign, and 51% negative
sign. We show that the acquirers’ rivals are not affected by M&A
announcements, whereas the targets’ rivals have positive or negative effects
depending on the country.
Regarding the impact on variance, we find that the cross-sectional test is
negative for most countries. This test is significant for acquirers and rivals
in Brazil and Colombia. We cannot estimate the cross-sectional test for
258 J. M. LOZADA ET AL.

targets due to the limited number of events per country. For all the events,
the test results are not significant for the rivals.
This paper proceeds as follows. The second section contains the literature
regarding the impacts of M&A announcements. The third section describes
the data construction process and shows the event study design. The fourth
section presents a discussion about results and a multivariate robustness
analysis. Finally, the last section sets out our conclusions.

Background and hypothesis

A large proportion of the financial literature about M&As focuses on the
performance of the firms involved in such deals and the impact on their
stakeholders (Alexandridis et al., 2017; Cort
es et al., 2015; De Young et al.,
2009; Jensen & Ruback, 1983). Performance is generally evaluated in mar-
ket terms, that is, how M&A announcements affect firm securities. M&A
announcements are events that contain new information about firms dir-
ectly or indirectly involved in this process. This information modifies the
return and the volatility of firms (Carroll & Kearney, 2015). As such, the
empirical literature has evaluated two effects of M&As: value creation for
shareholders and market volatility. The evaluation is commonly conducted
separately (Alexandridis et al., 2017; Amihud et al., 2002; Bozos et al., 2013;
Chang & Cho, 2017; Eckbo, 1983; Song & Walkling, 2000).
First, concerning the quantification of value creation in the aftermath of
the M&A announcements, the empirical evidence is inconclusive. For
instance, Houston and Ryngaert (1994) find that M&As generate negative
abnormal returns for acquirer banks, positive abnormal returns for target
banks, and zero return for the net deal (Return target þ Return acquirer).
However, Goddard et al. (2012) identify that in bank M&As, acquirers
have zero abnormal returns while targets have positive abnormal returns.
The positive effects depend on the firm’s market power after the deal, the
reduction in information asymmetry about targets, and improvement in
corporate governance policies (Akhigbe & Madura, 2001; Alexandridis
et al., 2017; Hankir et al., 2011; Humphery-Jenner et al., 2017). The nega-
tive effects are related to irrational or behavioral motivations (Cort
es et al.,
2015; Gugler et al., 2012; Shleifer & Vishny, 2003) and managers’ motiva-
tions that are not in line with shareholders’ interests (Fama et al., 1969;
Jensen, 1986; Kosnik & Shapiro, 1997). Consequently, the empirical evi-
dence shows that deals involving strategic decisions or that generate syn-
ergy for companies participating in M&As correspond to events that create
value for shareholders. Other motivations may have the opposite effect.
Thus, we hypothesize as follows:
 LATIN AMERICAN BUSINESS REVIEW 259

Hypothesis 1a: After the announcement of an M&A, the target bank’s shareholders
benefit by obtaining positive abnormal returns that are statistically significant.
Hypothesis 1b: The acquirer bank’s shareholders earn little or nothing or obtain
negative abnormal returns after the M&A announcement.

Regarding the impact of M&A announcements on rivals, the empirical

literature exhibits the opposite results. Studies posit different theoretical
explanations for positive abnormal returns by rivals. Eckbo (1983) studies
whether positive abnormal returns by rivals in horizontal M&As can be
explained by an increase in the likelihood of successful collusion among
rivals. Furthermore, Eckbo finds that a target’s rivals’ positive abnormal
returns are independent of whether the government declares the M&As
deal a violation of antitrust laws. The former suggests that positive abnor-
mal returns are explained by the efficient production hypothesis and not by
the collusion hypothesis.
Similarly, Shahrur (2005) finds that when an M&A generates value (com-
bined target and acquirer), rivals will show positive abnormal returns; but
if the M&A destroys value, rivals will have negative abnormal returns. This
behavior depends on whether the M&A generates efficiency gains. In con-
trast, Hankir et al. (2011) and Nain and Wang (2018) argue that this effect
is caused by the market power that acquirers and targets gain due to the
deal. Another justification for positive abnormal returns by rivals is the sig-
naling theory. Akhigbe and Madura (1999), Akhigbe and Martin (2000),
and Song and Walkling (2000) postulate that target firms’ rivals obtain
positive abnormal returns because after an M&A announcement, the prob-
ability that rivals become targets increases. Based on the above literature,
we posit the following:
Hypothesis 1c: The acquirer or target bank’s shareholders’ rivals earn little or nothing
or obtain negative abnormal returns after the M&A announcement.

The impact of M&As on the volatility of acquirers, the targets, and

the rivals in the bank industry has also been researched. Most of the lit-
erature shows a reduction in the volatility of stock returns, due to the
convergence in the market operator’s diversity in opinions about stock
prices of acquirers, targets, and rivals. After M&A announcements, mar-
ket operators have more information about the companies’ intrinsic
value involved in the deal. This causes opinions on the company’s stock
price to converge, which leads to a decrease in volatility (Chang & Cho,
2017; Elyasiani et al., 2016; Gelman & Wilfling, 2009; Hutson &
Kearney, 2001). However, an increase in volatility could either be
because of the unclear purpose of the deal or because of the rise in the
concentration of market power (Amihud et al., 2002; Bozos et al., 2013;
Casu et al., 2016; Elyasiani et al., 2016).
260 J. M. LOZADA ET AL.

Hypothesis 2: The acquirer, target, and rival bank’s stock returns show a reduction in
the EIV after the M&A announcement.

Data and methodology

Data
The information concerning M&A announcements for five Latin American
countries (Brazil, Chile, Colombia, Mexico, and Peru)5 between January 1,
2000, and June 30, 2019, come from Bloomberg and Thomson Reuters
EIKON databases.6 Our initial database contained 257 announcements.
Table 1 lists the number of deals in which a Latin American bank is the
acquirer or target by country and year. Panel A shows that in the late
1990s and early 2000s, the banking industry experienced a peak in M&A
activity. During this period, a common occurrence was that Latin
American countries carried out financial liberalization, which led to banks
seeking opportunities to become more competitive in an increasingly glo-
balized environment. Many of them found M&As to be a way to achieve it
(Daniel & Jones, 2007). Panel B shows that during periods of the financial
crisis, that is, the early 2000s and between 2007 and 2008, Latin American
banks’ acquisitions exceeded those in other periods.
Table 2 presents the number of deals according to the type of deal:
domestic or cross-border. Panel A shows that 76% of Latin American
banks’ acquisitions are domestic (deals between companies in the same
country). The remaining 24% are acquisitions by regional companies (in
Latin America) and companies in other parts of the world. Panel B shows
the type of deal in which a Latin American bank is a target. Note that 68%
of the deals are domestic deals, while the remaining 32% are cross-bor-
der deals.
We filtered our sample using the following criteria, which are usually
applied in the M&A literature: We excluded leveraged buyouts (LBOs),

Table 1. M&A announcements in the Latin American banking industry by country, 2000–2019.
Country 2000–2001 2002–3 2004–5 2006–7 2008–9 2010–11 2012–13 2014–15 2016–17 2018–19 Total
Panel A: by the acquirer
Brazil 12 22 12 8 20 14 13 12 7 5 125
Chile 1 2 0 2 0 1 3 3 5 2 19
Colombia 0 1 7 4 1 2 5 1 0 0 21
Mexico 1 1 1 0 1 4 2 5 2 0 17
Peru 2 2 0 1 2 3 1 2 0 4 17
Total 16 28 20 15 24 24 24 23 14 11 199
Panel B: by the target
Brazil 6 7 1 0 8 1 1 2 3 1 30
Chile 2 1 0 0 0 0 0 1 2 2 8
Colombia 1 0 3 2 0 1 1 0 0 0 8
Mexico 2 2 0 0 0 2 0 0 0 1 7
Peru 0 1 1 0 2 0 0 1 0 0 5
Total 11 11 5 2 10 4 2 4 5 4 58
 LATIN AMERICAN BUSINESS REVIEW 261

Table 2. M&A announcements by Latin American banks by type of deal, 2000–2019.

Country 2000–2001 2002–3 2004–5 2006–7 2008–9 2010–11 2012–13 2014–15 2016–17 2018–19 Total
Panel A: by the acquirer
Domestic 13 28 19 11 20 16 14 15 12 5 153
Cross-border 3 0 1 4 4 8 10 8 2 6 46
Total 16 28 20 15 24 24 24 23 14 11 199
Panel B: by the target
Domestic 6 8 4 2 9 3 0 3 2 3 40
Cross-border 5 3 1 0 1 1 2 1 3 1 18
Total 11 11 5 2 10 4 2 4 5 4 58

spin-offs, recapitalizations, repurchases, and government privatization.

Acquirers or targets are public banks listed on any of the stock exchanges
of the selected countries. The announcement must be the first news to the
public. Finally, the acquirer or target has not missed returns during the
event window.7
We finally obtained a database of 126 announcements, of which 116 con-
cern an acquirer that is a Latin American public bank and 8 of which are
target banks. Only three of them are both the acquirer and target Latin
American listed banks. Regarding rivals, we select firms that meet these cri-
teria and have a SIC code between 6000 and 6200. We obtained the daily
stock prices of acquirers, targets, rivals, and the daily stock market index of
each country from Bloomberg.8

Methodology
The event-study method lets us estimate the effect that an event has on
firms’ securities (Brown & Warner, 1980, 1985; Dodd & Warner, 1983;
Fama et al., 1969; MacKinlay, 1997). However, traditional event studies
only estimate abnormal returns of stocks around M&A announcements
(Akhigbe & Madura, 2001; Eckbo, 1983; Goddard et al., 2012; Hankir et al.,
2011; Houston & Ryngaert, 1994). Since this article’s objective is to analyze
the effect of M&A announcements on the mean and variance of bank
returns, we conduct a GARCH event study, which allows us to estimate the
impact of M&A announcements on stocks’ mean and variance of acquirer,
target, and rival banks.
Following (Balaban & Constantinou, 2006; Goddard et al., 2012;
Savickas, 2003), we use a canonical model as follows: equation 1 represents
the mean equation, and equation 2 stands for the conditional variance, esti-
mated with the model GARCH(1,1)9, as follows:
Ri, t ¼ ai þ bi RM, t þ ci Di, t þ ei, t , (1)
pffiffiffiffiffiffiffi
ei, t ¼ gi, t hi, t , gi, t  tðvÞ
hi, t ¼ ci þ ai e2i, t1 þ bi hi, t1 þ di Di, t (2)
262 J. M. LOZADA ET AL.

where ci > 0, ai > 0, bi > 0 and ai þ bi < 1: Ri, t stands for the daily
return of bank i on day t: RM, t stands for the index market’s return
from the country where the deal took place. Di, t represents a dummy
variable taking the value of 1 if t is in the event window or 0 other-
wise. ei, t represents errors in the mean model. hi, t holds for the condi-
tional variance of i on day t: gi, t stands for independent and identically
t-student with (v) degrees of freedom distributed random innovations.
ai , bi , di , ci , ci , ai , and bi , are parameters. Coefficient ci remains for the
CAR, and di is the EIV.
We determine an event window of 520 days, 260 days before and after
the event window. We use two event windows: the announcement day
[0,0] and two days around the announcement day [-1,1]. We use the short-
est event windows to avoid capturing effects generated by other types of
events (Balaban & Constantinou, 2006; Goddard et al., 2012; Leledakis &
Pyrgiotakis, 2019).
Additionally, we calculate two cross-sectional tests by country to iden-
tify how M&A announcements affect acquirers’ stock, target’s stock, and
the stock of the acquirer’s rivals. Employing these tests, we estimate the
statistical significance of the M&A announcement effect on the mean
and variance of bank returns. Following (Savickas, 2003), we use
Test1 ð^c Þ to compare the null hypothesis that the ACAR is different
from 0:
PN Si, t
Test1 ð^
c Þ ¼ rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
i¼1 N
 (3)
PN PN Si, t 2
1
N ðN1Þ i¼1 S i, t  i¼1 N

where N stands for the number of M&A announcements,

qffiffiffiffiffiffiffi
and Si, t ¼ ci = hci, t :
We use the cross-sectional t-statistic Test2 ð^
d Þ recommended by
(Balaban & Constantinou, 2006). With this test, we evaluate whether the
variance of bank stock changes during the event window, that is,
whether the AEIV, is different from 0:
PN Si
ð^ Þ
Test2 d ¼ rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
i¼1 N
ffi (4)
P  PN Si 2
N
i¼1 Si 
1
N ðN1Þ i¼1 N

where N stands for the number of M&A announcements, Si ¼ d^i =r^i , and
r^i is the standard deviation of daily conditional volatility for each bank i:
Test1 and Test2 distribute student’s t with N  1 degrees of freedom.
 LATIN AMERICAN BUSINESS REVIEW 263

Results
Acquirers
This subsection presents results for acquirer banks from Brazil, Chile,
Colombia, Mexico, and Peru. Table 3 shows CAR and EIV for 116 deals in
which the acquirers are Latin American listed banks. Column 5 reports
estimates of acquirer CAR for the event window [0.0],10 showing that 93%
of the events have a statistically significant CAR. 49% of the deals report
positive signs, which signals value creation for shareholders; 51% of the
deals are negative, which signals the destruction of value or the market
does not consider the deal as strategic for companies. These results are in
line with Hypothesis 1b.
In column 7, we report the EIV for the event window [0,0]. We found
that in 47% of the M&A announcements, the impact on acquirer stock
volatility is statistically significant. Nonetheless, the effect’s direction is not
always the same, and 83% of the significant coefficients are negative, sup-
porting Hypothesis 2. From the theoretical and empirical perspective, the
impact of M&A announcements on stock volatility depends on the inter-
action between the deal’s positive and negative effects (Amihud et al., 2002;
Bozos et al., 2013; Casu et al., 2016). On the one hand, the possible synergy
and profits accruing from the deal may generate uncertainty about the
future of the company, which may increase stock volatility. On the other
hand, the new information provided by the announcement of the deal
causes investor opinions about the price of the acquirer’s stock to converge,
which reduces volatility (Elyasiani et al., 2016).
Table 4 presents the results of cross-sectional Test1 (equation 3) and
Test2 (equation 4) for the event window ½0, 0 and ½1, 1 by country. In
general, Test1 is not statistically significant. These results suggest that, at
the country level, these strategies do not produce abnormal returns.
Therefore, we infer that M&As neither create nor destroy value for stock-
holders of acquirer banks between 2000 and 2019. Goddard et al., 2012
find that bank M&As in Latin American countries do not generate value
for shareholders from 1998 to 2010. These effects are consistent with those
reported by Leledakis and Pyrgiotakis (2019) for US banks between 1990
and 2014. In the event window ½1, 1, the results are robust and support
Hypothesis 1b. However, in Chile, Test1 shows a marginally significant
effect at 90% confidence level.
Nevertheless, AEIV is negative in all cases. According to Hutson and
Kearney (2001), investors have more information about the intrinsic value
of stocks, leading to better price formation and less volatility (Hypothesis
2). Test2 does not reject the null hypothesis for Brazil and Colombia.
Between 2008 and 2012, when there were more announcements of bank
Table 3. Cumulative abnormal returns and event-induced variance of acquirers, 2000–2019.
264

Country Acquirer Event day Target CAR [0,0] p-value EIV [0,0] p-value
Brazil Unibanco, Uniao de 02-28-2000 Banco Credibanco 0.0202 (0.0000) –0.0002 (0.0363)
Bancos Brasileiros
Brazil Banco Bradesco 04-28-2000 Banco Boavista 0.0738 (0.0000) –0.0001 (0.3784)
Interatlantico
Brazil Unibanco, Uniao de 07-03-2000 Banco Bandeirantes 0.0301 (0.0000) –0.0006 (0.0000)
Bancos Brasileiros
Brazil Itau Unibanco Holding 12-14-2000 [Link] –0.0078 (0.0000) –0.0002 (0.1003)
Brazil Unibanco, Uniao de 12-19-2000 Banco Fininvest –0.0326 (0.0494) 0.0003 (0.0000)
J. M. LOZADA ET AL.

Bancos Brasileiros
Brazil Banco Bradesco 03-27-2001 BCN Alliance 0.0039 (0.0017) –0.0001 (0.5082)
Capital Management
Brazil Unibanco, Uniao de 08-27-2001 Banco Investcred –0.0002 (0.0000) –0.0004 (0.0000)
Bancos Brasileiros
Brazil Itau Unibanco Holding 10-04-2001 Lloyds TSB 0.0225 (0.0000) –0.0001 (0.5184)
Asset Management
Brazil Banco do Brasil 11-30-2001 Max Blue Americas –0.0159 (0.0000) –0.0007 (0.0000)
Brazil Itau Unibanco Holding 12-21-2001 Banco Sudameris Brasil –0.0334 (0.0000) –0.0001 (0.7563)
Brazil Banco Bradesco 01-14-2002 Banco Mercantil de 0.0275 (0.0000) –0.0002 (0.1432)
S~ao Paulo
Brazil Banco Bradesco 02-25-2002 Banco Cidade 0.0232 (0.0000) –0.0000 (0.6331)
Brazil Itau Unibanco Holdings 05-13-2002 Banco Brascan –0.0090 (0.0234) 0.0001 (0.4615)
Brazil Itau Unibanco Holdings 11-05-2002 Banco BBA Creditanstalt –0.0081 (0.0000) –0.0001 (0.2948)
Brazil Itau Unibanco Holdings 12-03-2002 Banco Fiat –0.0187 (0.0000) –0.0002 (0.3056)
Brazil Banco Bradesco 01-13-2003 Banco Alvorada 0.0060 (0.0000) –0.0001 (0.4228)
Brazil Itau Unibanco Holdings 06-10-2003 Banestado, Banco BEG, –0.0049 (0.0000) –0.0001 (0.6303)
and Banco Bemge
Brazil Banco do Brasil 09-26-2003 Maxblue DTVM –0.0561 (0.0000) –0.0001 (0.4021)
Brazil Banco Bradesco 11-07-2003 Banco Zogbi 0.0167 (0.0000) 0.0000 (0.5458)
Brazil Unibanco, Uniao de 11-18-2003 Creditec Financiamento e –0.0033 (0.0000) –0.0001 (0.0252)
Bancos Brasileiros Investimento
Brazil Unibanco, Uniao de 03-01-2004 Hipercard 0.0053 (0.0000) –0.0001 (0.0000)
Bancos Brasileiros
Brazil Unibanco, Uniao de 06-16-2004 Banco BNL do Brasil –0.0352 (0.0000) –0.0001 (0.0618)
Bancos Brasileiros
Brazil Itau Unibanco Holding 11-08-2004 Orbitall –0.0110 (0.0000) 0.0000 (0.6278)
Brazil 06-03-2005 Banco Dibens 0.0192 (0.0000) –0.0000 (0.6892)
 Unibanco, Uniao de
Bancos Brasileiros
Brazil Itau Unibanco Holding 05-02-2006 Bankboston Brazil 0.0234 (0.0000) 0.0000 (0.6038)
Brazil Banco Bradesco 05-15-2006 Bradesplan Participacoes 0.0003 (0.0000) 0.0002 (0.0000)
Brazil Itau Unibanco Holding 11-28-2006 BankBoston Trust and 0.0005 (0.0000) –0.0001 (0.0000)
BankBoston
International
Brazil Banco Bradesco 01-24-2007 Banco BMC –0.0008 (0.2821) –0.0000 (0.8147)
Brazil Banco Bradesco 01-22-2008 Mediservice –0.0489 (0.0000) 0.0000 (0.7165)
Brazil Banco Bradesco 03-06-2008 Agora Holdings –0.0184 (0.0000) –0.0001 (0.0004)
Brazil Banco do Brasil 07-07-2008 Cia de Seguros Alianca –0.0258 (0.0000) 0.0002 (0.5024)
do Brasil
Brazil Banco Bradesco 09-04-2008 Leader S/A 0.0191 (0.0000) 0.0006 (0.0463)
Administradora de
Cartoes de Credito
Brazil Itau Unibanco Holding 11-03-2008 Unibanco, Uniao de 0.1239 (0.0000) –0.0005 (0.1520)
Bancos Brasileiros
Brazil Unibanco, Uniao de 11-26-2008 Unibanco AIG Seguros –0.0000 (0.9558) –0.0007 (0.0045)
Bancos Brasileiros
Brazil Banco Industrial 11-03-2009 Sul FinanceiraCredito –0.0155 (0.0000) 0.0000 (0.9788)
e Comercial Financiamentos
e Investi
Brazil Banco Bradesco 02-02-2009 Europ Assistance Brasil –0.0087 (0.0000) 0.0001 (0.6418)
Brazil Banco Bradesco 06-05-2009 Banco ibi –0.0051 (0.0000) –0.0001 (0.1828)
Brazil Banco do Brasil 10-27-2009 Brasilprev Seguros e –0.0022 (0.1329) 0.0001 (0.1790)
Previdencia
Brazil Itau Unibanco Holding 11-13-2009 XL Seguros Corporativos 0.0187 (0.0000) –0.0000 (0.4387)
Brazil Banco Bradesco 01-22-2010 Ibi Mexico 0.0046 (0.0000) –0.0005 (0.0000)
Brazil Banco Bradesco 04-06-2010 ITP Partners –0.0101 (0.0000) –0.0000 (0.2777)
Brazil Banco do Brasil 12-15-2009 Banco Patagonia 0.0003 (0.1466) 0.0000 (0.8148)
Brazil Banco do Brasil 05-05-2010 Brasilveiculos Cia 0.0054 (0.0000) 0.0001 (0.4820)
de Seguros
Country Acquirer Event day Target CAR [0,0] p-value EIV [0,0] p-value
Brazil Banco Bradesco 01-26-2011 Companhia Brasileira de 0.0032 (0.0000) –0.0001 (0.0000)
Solucoes e Servicos
Brazil Banco do Brasil 04-25-2011 EuroBank –0.0038 (0.0008) –0.0000 (0.4169)
LATIN AMERICAN BUSINESS REVIEW

Brazil Banco Bradesco 05-20-2011 Banco do Estado do Rio –0.0063 (0.0000) –0.0001 (0.0137)
de Janeiro
(continued)
265
Table 3. Continued.
266

Country Acquirer Event day Target CAR [0,0] p-value EIV [0,0] p-value
Brazil Banco Indusval 06-16-2011 Guide Investimentos –0.0053 (0.0000) –0.0002 (0.0000)
Corretora de Valores
Brazil Itau Unibanco Holding 02-07-2012 Redecard 0.0024 (0.0000) –0.0000 (0.0000)
Brazil Itau Unibanco Holding 08-09-2012 Financeira Americanas –0.0092 (0.0000) –0.0001 (0.0000)
Brazil Banco Indusval 02-19-2013 Voga Empreendimentos e –0.0011 (0.0000) –0.0001 (0.0000)
Participacoes
Brazil Itau Unibanco Holding 05-14-2013 Banco Citicard 0.0036 (0.0000) –0.0000 (0.1347)
Brazil Itau Unibanco Holding 06-17-2013 CAT Administradora 0.0108 (0.0000) 0.0000 (0.8768)
J. M. LOZADA ET AL.

de Tarjetas
Brazil Banco Indusval 06-26-2013 Banco Intercap 0.0059 (0.2339) 0.0007 (0.0789)
Brazil Itau Unibanco Holding 06-27-2013 BMG Seguradora 0.0115 (0.0000) –0.0000 (0.1673)
Brazil Banco Bradesco 10-15-2013 Odontoprev –0.0133 (0.0000) –0.0000 (0.8288)
Brazil Banco Santander Brasil 04-07-2014 GetNet 0.0241 (0.0000) –0.0008 (0.0000)
Brazil Itau Unibanco Holding 08-04-2014 Munita Cruzat and Claro 0.0012 (0.0000) –0.0003 (0.0000)
Brazil Itau Unibanco Holding 09-10-2014 Maxipago Servicos –0.0014 (0.0000) –0.0001 (0.3661)
de Internet
Brazil Banco Bradesco 12-09-2014 2bCapital 0.0225 (0.0000) 0.0001 (0.6039)
Brazil Parana Banco 12-11-2014 Cardinal Cia de Seguros 0.0093 (0.0060) –0.0005 (0.0279)
Brazil Banco Daycoval 12-12-2014 Banco Commercial 0.0055 (0.0244) 0.0002 (0.2779)
Investment Trust
do Brasil
Brazil Banco Bradesco 08-03-2015 HSBC Bank Brasil –0.0132 (0.0000) 0.0001 (0.2113)
Brazil Itau Unibanco Holding 12-30-2015 Recovery do Brasil 0.0063 (0.0000) 0.0000 (0.0000)
Consultoria
Brazil Banco Santander Brasil 03-14-2016 ContaSuper 0.0177 (0.0000) –0.0001 (0.3259)
Brazil Itau Unibanco Holding 09-29-2016 Banco Itau Consignado –0.0072 (0.0000) –0.0000 (0.9106)
Brazil Banco Santander Brasil 06-13-2017 Banco Original –0.0069 (0.0000) 0.0000 (0.9626)
Brazil Banco Santander Brasil 08-08-2017 Ipanema 0.0238 (0.0000) –0.0007 (0.0000)
Brazil Banco Bradesco 10-01-2018 Fidelity Processadora –0.0014 (0.0000) –0.0001 (0.0000)
Brazil Banco Bradesco 10-02-2018 RCB Investimentos 0.0112 (0.2044) 0.0001 (0.0000)
Brazil Banco Bradesco 05-06-2019 BAC Florida Bank –0.0146 (0.0000) –0.0000 (0.7599)
Chile Banco de Chile 08-08-2001 Banco de A Edwards –0.0024 (0.0004) 0.0001 (0.7812)
Chile Banco Santander Chile 05-07-2002 Banco Santiago 0.0017 (0.0002) –0.0006 (0.0000)
Chile Banco de Credito e 11-18-2003 Banco Conosur 0.0020 (0.0000) 0.0000 (0.7160)
Inversiones
Chile Banco de Chile 12-04-2007 –0.0019 (0.0000) –0.0002 (0.0000)
 Legg Mason Chile
Administradora General
de Fondos
Chile Banco de Chile 06-29-2007 Citibank Agencia 0.1309 (0.0000) –0.0000 (0.8655)
de Valores
Chile Corpbanca 12-06-2011 Banco –0.0149 (0.0000) –0.0001 (0.3104)
CorpBanca Colombia
Chile Corpbanca 10-09-2012 Helm Bank 0.0036 (0.0000) 0.0001 (0.5779)
Chile Banco de Credito e 05-24-2013 City National Bank –0.0368 (0.0000) 0.0001 (0.1130)
Inversiones of Florida
Chile Corpbanca 01-29-2014 Banco Itau Chile –0.1230 (0.0000) –0.0002 (0.0281)
Chile Banco de Chile 07-10-2015 Banco Penta 0.0024 (0.0031) 0.0000 (0.2849)
Chile Banco de Credito e 12-01-2017 TotalBank –0.0198 (0.0003) –0.0004 (0.0000)
Inversiones
Chile Banco de Credito e 12-19-2017 Credit Card Operations –0.0094 (0.1195) 0.0002 (0.0012)
Inversiones Walmart Chile
Chile Corpbanca 05-29-2019 MCCCorredores de Bolsa –0.0213 (0.0000) 0.0000 (0.9659)
Colombia BanColombia 03-09-2003 Cia Suramericana de –0.0013 (0.0011) 0.0000 (0.7875)
Financiamiento
Comercial
Colombia Banco de Bogota 03-01-2005 BankBoston Colombia –0.0045 (0.0000) 0.0001 (0.0000)
Colombia BanColombia 09-14-2004 Corp Financiera Nacional 0.0222 (0.0000) 0.0002 (0.5843)
y Suramericana
Colombia BanColombia 12-12-2005 Comercia –0.0011 (0.0000) –0.0001 (0.0000)
Country Acquirer Event day Target CAR [0,0] p-value EIV [0,0] p-value
Colombia Banco de Bogota 03/16/2006 Megabanco 0.0202 (0.0000) –0.0003 (0.0000)
Colombia BanColombia 12/22/2006 Banagricola 0.0121 (0.0012) –0.0001 (0.1619)
Colombia Helm Bank 06/22/2010 Helm Leasing –0.0096 (0.0000) –0.0002 (0.0000)
Colombia Banco Davivienda 01/24/2012 Banco HSBC from El –0.0138 (0.0041) –0.0005 (0.0000)
Salvador, Costa Rica,
and Honduras
Colombia BanColombia 08/30/2012 UFF! Mobile SAS –0.0123 (0.0000) –0.0001 (0.0000)
Colombia BanColombia 02/19/2013 Banistmo 0.0012 (0.0000) –0.0001 (0.0916)
Colombia Banco Davivienda 11/15/2013 Corredores Asociados 0.0168 (0.0000) –0.0001 (0.5707)
Colombia BanColombia 12/30/2015 Grupo 0.0081 (0.0000) –0.0002 (0.0000)
Agromercantil Holding
LATIN AMERICAN BUSINESS REVIEW

Mexico Grupo Financiero Banorte 06/10/2009 Ixe Afore –0.0576 (0.0000) –0.0010 (0.0000)
Mexico Grupo Financiero Inbursa 06/04/2010 Chrysler Financial Services 0.0015 (0.6054) –0.0002 (0.0251)
de Mexico
267

(continued)
Table 3. Continued.
268

Country Acquirer Event day Target CAR [0,0] p-value EIV [0,0] p-value
Mexico Grupo Financiero Banorte 10/19/2010 IXE Grupo Financiero SAB 0.0088 (0.0000) –0.0002 (0.0000)
Mexico Gentera SAB 03/28/2011 Compartamos Financiera 0.0096 (0.0000) –0.0002 (0.0000)
Mexico Grupo Financiero Banorte 06/11/2013 Pensiones Banortede and –0.0166 (0.0000) –0.0001 (0.6735)
Seguros Banorte
Mexico Banco Santander Mexico 06/14/2013 ING Hipotecarias 0.0030 (0.0007) 0.0008 (0.1368)
de Mexico
Mexico Grupo Financiero Inbursa 03/14/2014 Banco Standard de –0.0061 (0.0000) 0.0000 (0.6075)
Investimentos
J. M. LOZADA ET AL.

Mexico Gentera 10/16/2014 Pagos Intermex 0.0038 (0.0000) 0.0000 (0.9591)

Mexico Regional 11/20/2014 Arrendadora Capita Corp –0.0043 (0.0000) –0.0002 (0.0000)
Mexico Grupo Financiero Inbursa 12/18/2014 Banco Wal-Mart de 0.0055 (0.0069) –0.0001 (0.1483)
Mexico Adelante
Mexico Gentera 03/23/2015 Compartamos Financiera 0.0022 (0.0047) –0.0001 (0.0026)
Mexico Grupo Financiero Banorte 10/25/2017 Grupo Financiero –0.0638 (0.0000) 0.0002 (0.0252)
Interacciones
Peru Credicorp 07/24/2006 AFP Union Vida 0.0100 (0.0000) –0.0003 (0.0000)
Peru Scotiabank Peru 05/20/2008 Banco del Trabajo 0.0112 (0.0000) –0.0002 (0.0470)
Peru Credicorp 10/21/2010 El Pacifico Vida Cia de –0.0077 (0.0000) –0.0002 (0.0000)
Seguros y Reaseguros
Peru Credicorp 07/01/2011 La Esperanza del Peru –0.0014 (0.0000) –0.0003 (0.0000)
and San Isidro
Peru Credicorp 04/24/2012 Inversiones IMTrust –0.0056 (0.0109) 0.0001 (0.4612)
Peru Credicorp 02/10/2014 Mibanco Banco de la 0.0213 (0.0000) 0.0000 (0.9864)
Microempresa
Peru Credicorp 03/27/2019 Multicaja 0.0022 (0.0126) –0.0003 (0.0000)
Peru Credicorp 04/23/2019 Correval Panama –0.0576 (0.0000) 0.0001 (0.0013)
Peru Credicorp 06/28/2019 Banco Compartir –0.0102 (0.0213) –0.0000 (0.5252)
CAR: cumulative abnormal return; EIV: event-induced variance. Leveraged buyouts (LBOs), spin-offs, recapitalizations, repurchases, and government privatization are excluded.,,
and represent significance at 10%, 5%, and 1%, respectively.
 LATIN AMERICAN BUSINESS REVIEW 269

Table 4. Average cumulative abnormal returns and average event-induced variance of

acquirers: cross-sectional test.
[0,0] [–1,1]
Country n ACAR AEIV ACAR AEIV
Brazil 70 0.0021 –8.91e–05 0.0013 –1.93e–05
(0.2890) (0.0038) (0.2987) (0.0588)
Chile 13 –0.0068 –7.89e–05 –0.0033 –7.58e–05
(0.3370) (0.7246) (0.0947) (0.7599)
Colombia 12 0.0032 –1.05e–04 0.0020 –4.36e–05
(0.3311) (0.1141) (0.3216) (0.0707)
Mexico 12 –0.0095 –8.30e–05 0.0009 –4.69e–05
(0.2077) (0.8765) (0.8153) (0.3297)
Peru 9 –0.0043 –1.01e–04 0.0039 –6.31e–05
(0.3815) (0.1336) (0.2836) (0.7064)
Note: This table reports estimates of cross-sectional tests for acquirers by country: Test1 , for average cumulative
abnormal returns (ACAR), and Test2 , for average event-induced variance (AEIV). n stands for the number of
M&A announcements between 2000 and 2019. The p-values are presented in parentheses. , , and 
reveals significance at 10%, 5%, and 1%, respectively.

Table 5. Average cumulative abnormal returns and average event-induced variance of

acquirers’ rivals: cross-sectional test.
[0,0] [–1,1]
Country n ACAR AEIV ACAR AEIV
Brazil 70 0.0021 –8.91e–05 0.0013 –1.93e–05
(0.2890) (0.0038) (0.2987) (0.0588)
Chile 13 –0.0068 –7.89e–05 –0.0033 –7.58e–05
(0.3370) (0.7246) (0.0947) (0.7599)
Colombia 12 0.0032 –1.05e–04 0.0020 –4.36e–05
(0.3311) (0.1141) (0.3216) (0.0707)
Mexico 12 –0.0095 –8.30e–05 0.0009 –4.69e–05
(0.2077) (0.8765) (0.8153) (0.3297)
Peru 9 –0.0043 –1.01e–04 0.0039 –6.31e–05
(0.3815) (0.1336) (0.2836) (0.7064)
Note: This table reports estimates of cross-sectional tests of acquirers’ rivals by country: Test1 for average cumu-
lative abnormal returns (ACAR) and Test2 for average event-induced variance (AEIV). n is the number of M&A
announcements between 2000 and 2019. The p-values are in parentheses. , , and  significant at 10%,
5%, and 1%, respectively.

M&As, Latin American equity markets grew significantly, Colombia being

one of the most dynamic in the region (Cardona et al., 2017; Duarte
Duarte & Mascare~ nas, 2014). Colombia and Brazil may be providing more
information for investors since most of the corporate integrations in the
banking industry focused on these two countries.
Table 5 shows the results of Test1 and Test2 for the rivals of acquirers.
The results for Test1 do not reject the null hypothesis, which suggests that
M&As do not affect the acquirers’ rivals at the country level, supporting
Hypothesis 1c. Test2 is negative for all cases, but is only significant for
Brazil, and marginally for Colombia (Hypothesis 2). From these results, we
270 J. M. LOZADA ET AL.

infer that after M&A announcements, the rival stock prices converge to
their intrinsic value, leading to decreased volatility (Chang & Cho, 2017;
Elyasiani et al., 2016; Gelman & Wilfling, 2009; Hutson & Kearney, 2001).

Targets
This section presents the results for Latin American target banks in Brazil,
Chile, Colombia, and Mexico.11 The price information on a large propor-
tion of target banks is not available because, after an M&A, the target is
often delisted. For this reason, the number of events decreases more than
the number of acquirers.
Table 6 shows the CAR and EIV for Latin American target banks. We
observe statistically significant CAR with negative and positive signs, lead-
ing to inconclusive evidence on Hypothesis 1a. The finance literature gen-
erally finds that targets have a positive CAR, because deals tend to foster
synergies and increase the efficiency of targets (Akhigbe & Madura, 2001;
Hankir et al., 2011). Some evidence indicates that when deals are carried
out under conditions of uncertainty and inefficiency, the targets may have
a negative CAR (Cort
es et al., 2015). We found that in three deals, the tar-
get’s CAR is negative. According to Bloomberg News, the three agreements
involved favoring participants, undervaluation of the stocks, and difficulties
in the negotiation, which are possible reasons the market views such trans-
actions negatively. The results on EIV are qualitatively similar to those
obtained for acquirers (Hypothesis 2).
Table 7 lists the results of Test1 and Test2 for the targets’ rivals. In gen-
eral, Test1 shows that M&A announcements do not affect the value of rival
stocks (Hypothesis 1c). We observe that in Colombia, ACAR is negative
and significantly different from zero. This result indicates that, on average,
the deals carried out in this country generated losses in value for rival
banks because, with the transaction, the target accrues synergies or gains in
market power (Shahrur, 2005). Test2 reveals that AEIV is negative in all
cases, and the results are qualitatively similar to those for the acquirer
(Hypothesis 2).

Multivariate analysis
Stylized facts in financial returns show that volatility between assets and
markets is correlated (Wang et al., 2002). As a robustness analysis, we pre-
sent a multivariate representation of the GARCH model to isolate the effect
of the M&A announcement on the volatility of the acquirer and target
stock from co-movements between two banks.12
Table 6. Cumulative abnormal returns (CAR) and event-induced variance (EIV) of targets, 2000–2019.
Country Acquirer Event day Target CAR [0,0] p-value EIV [0,0] p-value
Brazil Itau Holding 11-03-2008 Unibanco, Uniao de Bancos 0.0581 (0.0000) 0.0007 (0.4617)
Brasileiros
Brazil Banco BTG Pactual 01-31-2011 Banco Panamericano –0.0271 (0.0000) –0.0156 (0.0000)
Brazil China Construction Bank 10-31-2013 Banco Industrial e Comercial 0.0023 (0.3620) –0.0052 (0.0000)
Chile Quinenco 12-13-2000 Banco de Chile –0.0726 (0.0000) –0.0106 (0.6615)
Chile Banco de Chile 08-08-2001 Banco de A Edwards 0.0728 (0.0000) 0.0008 (0.1500)
Colombia BanColombia 09-14-2004 Corfinsura 0.0606 (0.0000) 0.0008 (0.1236)
Colombia Corpbanca 10-09-2012 Helm Bank –0.0151 (0.0000) –0.0006 (0.0000)
Mexico Gentera 09-05-2011 Banco Compartamos 0.0012 (0.8495) 0.0011 (0.2039)
CAR: cumulative abnormal return; EIV: event-induced variance. Leveraged buyouts (LBOs), spin-offs, recapitalizations, repurchases, and government privatizations are excluded.,
and significant at 10%, 5%, and 1%, respectively.
LATIN AMERICAN BUSINESS REVIEW
271
272 J. M. LOZADA ET AL.

Table 7. Average cumulative abnormal returns and event-induced variance of targets’ rivals:
cross-sectional test.
[0,0] [–1,1]
Country n ACAR AEIV ACAR AEIV
Brazil 25 0.0099 –1.18e–03 0.0051 –4.17e–05
(0.2857) (0.2405) (0.2859) (0.8447)
Chile 4 0.0077 9.61e–05 0.0050 4.73e–05
(0.1236) (0.7831) (0.3360) (0.4178)
Colombia 4 –0.0036 –4.10e–05 –0.0024 2.31e–06
(0.2069) (0.1389) (0.0318) (0.9963)
Mexico 8 0.0108 –1.67e–04 0.0021 –1.05e–04
(0.0604) (0.0775) (0.7293) (0.1945)
Note: This table reports estimates of cross-sectional tests for targets’ rivals by country: Test1 for average cumula-
tive abnormal returns (ACAR) and Test 2 for average event-induced variance (AEIV). n is the number of M&A
announcements between 2000 and 2019. The p-values are in parentheses. , ,  significant at 10%, 5%,
and 1%, respectively.

Table 8. Event-induced variance: a multivariate GARCH model.

Acquirer Unibanco Banco de Chile Bancolombia
Target Itau Banco de A Edwards Corfinsura
c1 0.00014 0.00025 0.00005
(0.0001) (0.0001) (0.0001)
c2 0.00008 0.00000 0.00000
(0.0001) (0.0000) (0.0000)
c3 0.00014 0.00019 0.00001
(0.0001) (0.0001) (0.0000)
a11 0.04108 0.80778 0.04033
(0.0357) (0.5151) (0.0398)
a12 0.05374 –0.18820 0.03621
(0.0256) (0.236) (0.0432)
a22 0.03771 0.35581 0.08156
(0.027) (0.2799) (0.0369)
b11 0.56720 0.13787 0.54781
(0.4101) (0.0813) (0.4978)
b12 0.60904 0.53513 0.56034
(0.2344) (0.5503) (0.6838)
b22 0.55985 0.56738 0.86541
(0.4043) (0.1777) (0.0535)
c1 –0.00022 –0.00031 –0.00014
(0.0005) (0.0018) (0.0003)
c2 –0.00022 0.00659 0.00011
(0.002) (0.0191) (0.0042)
This table reports estimates of a multivariate diagonal VEC model. We estimate for the event windows [0,0]. The
standard errors are in parentheses. , , and  significant at 10%, 5%, and 1%, respectively.

Only three deals in the total sample involve public banks as an acquirer
and as a target: Itau Unibanco, Banco de Chile-Banco de A Edwards, and
Bancolombia-Corfinsura. Therefore, we use these three events for the
multivariate estimate. Table 8 shows the results from the multivariate VEC
model. We found volatility transmission between Banco Itau and
Unibanco. Coefficient a12 is statistically different from zero, implying that
news about Banco Itau affects Unibanco’s volatility. Coefficient b12 is also
statistically different from zero, suggesting that Itau’s volatility affects
Unibanco Bank’s volatility. Nonetheless, we found that the event’s dummy
 LATIN AMERICAN BUSINESS REVIEW 273

coefficients are not significant, and their magnitude does not differ signifi-
cantly from the univariate estimate.
We found no evidence of transmission of volatility between the acquirer
and target in the other two events. The significance and magnitude of c1
and c2 do not change significantly regarding the univariate estimates.
Regarding the above evidence, we infer that even with joint estimates, the
effects of the announcement of M&As on targets and acquirer volatility
remain qualitatively the same.

Conclusions
We studied the implications of M&A announcements on banks in Brazil,
Chile, Colombia, Mexico, and Peru between 2000 and 2019. We analyze
the effects of these announcements on the mean and variance of returns
from the acquirer, target, and rival stocks. For this purpose, we use a
GARCH event study, which allows us to estimate the CAR and the EIV.
Also, we perform two cross-sectional tests to identify the effect of M&A
announcements at the country level.
We found that M&A announcements generate positive and negative CARs
for acquirers, targets, and rivals, which is consistent with the current literature.
We found that the ACAR of acquirers and rivals is not significantly different
from zero in the cross-sectional test. This result suggests that M&A announce-
ments in Latin America neither generate nor destroy value for acquirers and
rivals. We observe positive effects for the target, and when motivations do not
lead to a strategic deal, the result can be negative.
Concerning the effect on variance, we find that EIV is negative in most
cases. Cross-sectional test results show that M&A announcements decrease
the volatility of acquirer, target, and rival stocks. This evidence suggests
that, after the announcement, market beliefs about the stock’s intrinsic
value converge. As a consequence, we observed a decrease in conditional
volatility. This result is relevant for its implications for regulators and par-
ticipants in the remaining markets.
As banks grow, they become more interconnected with other industries,
which brings benefits and disadvantages. Operationally, larger entities can
have economies of scale and scope, which translates into lower costs. For
the acquiring banks’ companies in other sectors, diversification benefits can
be achieved from a portfolio theory perspective. However, both the implica-
tions for both regulators and investors’ concerns the increased systemic
risk that may impact financial stability. Additionally, customers may be
affected if banks establish oligopolistic or monopolistic structures.
Finally, we run a multivariate GARCH model to isolate the effect of the
M&A announcement on the volatility of the acquirer and target stock of
274 J. M. LOZADA ET AL.

co-movements between two banks. Our results suggest that even with joint
estimations, the effects of the announcement of M&As on the volatility of
targets and acquirers remain qualitatively the same. As a limitation, we
have that the transmission of volatility between acquirers and targets in the
CAR and EIV cannot be generalized as the number of events where the
data is available for both acquirers and targets is limited.
Future studies about this topic are relevant. Usually, policymakers have
focused on setting rules for the corporate control market based on abnor-
mal returns and disregarding conditional volatility. In this kind of deal,
there may be an inappropriate belief about the risk-return relationship. For
example, regulation generally seeks to protect target shareholders. However,
our results suggest that target shareholders have twofold gains due to
abnormal returns and lower volatility. It may be interesting to research
M&As from other regions and sectors to determine whether this inter-
action between acquirer and target may affect CAR and EIV estimations.

Acknowledgments
The authors are grateful to acknowledge the funding received from Universidad EAFIT
[project 828-000019].

Disclosure statement
The authors declare that they have no conflict of interest.

Notes
1. Thomson Reuters Eikon. (2019). [Number of mergers and acquisitions in the banking
industry, 1980-2019] [Link]
SearchAdvanced?state=1608470666058&universe=MA&search=SearchAllMergers
Acquisitions
2. For a comprehensive review of M&As in the banking industry, see Berger et al.
(1999) and De Young et al. (2009).
3. Thomson Reuters Eikon. (2019). [Number of mergers and acquisitions in the
banking industry, 1980-2019] [Link]
SearchAdvanced?state=1608470666058&universe=MA&search=SearchAllMergers
Acquisitions
4. Literature related to this topic can be found in Humphery-Jenner et al. (2017), Nain
and Wang (2018), and Piloff and Santomero (1998).
5. To choose the sample, we based on representative countries of the Latin American
stock market. Thus, we selected those that compose the MSCI Emerging Markets
Latin America Index. Between 2000 and 2019, there were 370 M&A deals in the Latin
American banking industry. Of these, 257 (70%) were from banks in Brazil, Chile,
Colombia, Mexico, or Peru.
 LATIN AMERICAN BUSINESS REVIEW 275

6. One of the most challenging activities in this research was the news search. We
identified very precisely the day where the first rumor of the transaction occurred by
gleaning financial newspapers, Bloomberg news, and Thomson Reuters EIKON
database and contrasting the information between them.
7. Following Cort
es et al. (2015) and Savickas (2003).
8. BOVESPA in Brazil, IPSA in Chile, COLCAP in Colombia, IPC in Mexico, and
IGBVL in Peru.
9. We also compared different GARCH family models based on information criteria for
model selection and statistical inference when we analyzed the conditional volatility
estimation. We run an EGARCH; however, the result remains qualitatively the same
for this alternative specification.
10. We report only the event window results [0,0], and the results of the events window
[-1,1] are qualitatively the same. However, for some individual events, the EIV
coefficient for window [-1,1] is not statistically significant. When the event window
widens, both the magnitude and significance weaken, and volatility might not be
adequately captured. A similar effect is reported by (Elyasiani et al., 2016).
11. Peru does not have events that can be analyzed, considering the criteria that
we apply.
12. We use the canonical model proposed by Bollerslev et al. (1988).

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