Diversification in interstate banking: the search for related performance profiles between acquiring and acquired banking firms expanding across state lines

Notes increasing consolidation of the banking industry in the USA, Western Europe and Japan; and presents a study of 1980‐1994 acquisitions of US banks by large interstate banking firms. Considers possible motives for cross‐border expansion, reviews relevant research and compares the performance of target banks with their local competitors and their buyers; and buyers’ performance with their competitors. Finds that most buyers are located in rich, densely populated states and most targets in states which have traditionally restricted bank branching activity; that buyers and targets have very different performance profiles (although some differences gradually reduce after acquisition); and that local market influences have a greater effect than common ownership. Concludes that targets are selected for their location and expected future performance, with possible diversification benefits.