The purpose of this dissertation is to identify salient financial and nonfinancial variables that determine the premiums paid in commercial bank mergers and acquisitions that occurred between January 1995–December 2000. The dependent variable for this study is the ratio of the purchase price to target bank tangible book value. The financial independent variables utilized in this study include the following: (1) target bank's return on equity, (2) acquiring bank's return on equity, (3) target bank's price/earnings ratio, (4) acquiring bank's price/earnings ratio, (5) target bank's ratio of non-performing assets to total assets, (6) acquiring bank's ratio of non-performing assets to total assets, (7) target bank's total asset size in terms of dollars, (8) acquiring bank's total asset size in terms of dollars, (9) relative size of acquiring bank to target bank, (10) target bank's ratio of equity (capital) to total assets, (11) acquiring bank's ratio of equity (capital) to total assets. The non-financial independent variables utilized in this study are: (1) age of target bank CEO at the announcement date of the merger or acquisition, (2) the accounting method (purchase or pooling of interest) utilized in the merger or acquisition transaction, and (3) the percentage ownership of target bank officers and directors.
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