Abstract
This paper utilizes capital market data to analyze investors' assessment of the expected impact of the merger between Mizrahi-Tefahot Bank and Union Bank on the Israeli banking industry. The acquisition of Union Bank, the sixth largest bank in Israel, by Mizrahi-Tefahot, the third largest bank, is among the most prominent changes to have taken place in the Israeli banking industry in recent decades, and it initiated a fierce debate among experts, regulators, and politicians regarding its impact on competition within this industry. An examination of the behavior of the other bank stocks around the time of merger-related announcements suggests that investors saw the merger as a net-positive event for the rival banks, as reflected by a surge in their stock prices. The economic literature commonly interprets a positive reaction of rival firms’ stocks (alongside a positive reaction of the merging firms’ stocks) as an indication that investors expect the merger to reduce competition within the affected industry. However, and in light of other significant changes in the financial industry, the merger’s long-term impact on the competitive landscape in the banking industry and on bank customers remains an open question.