| Abstract: | Financial leverage has been found to be a significant determinant in the pricing of bank acquisitions. This project will focus on analyzing how financial leverage affects the value of a bank. To study this empirical relationship, various financial, economic, and market data were obtained for 217 bank mergers occurring in 1985. The variables were then entered into a statistical regression model. To isolate the effect of leverage on price/book ratio, these other variables were held constant. This study will first review the financial theories relevant to our analysis. Next, variables used in the study will be explained, as well as the statistical model selection, its characteristics, and the regression equation. The statistical hypothesis to be tested is stated along with its implications. This is followed by a discussion of the results of the statistical model. Finally, the study will be summarized and conclusions drawn. |
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