Penas and Unal have provided a great look at bank mergers in this forthcoming JFE piece. rather than looking at equity, they examine what happens to the merging banks'bonds. As theory would predict, they find that the bonds go up in value. Why? As the authors state: "The primary determinants of merger-related bondholder gains are diversification gains, gains associated with achieving too-big-to-fail status, and, to a lesser degree synergy gains." Great stuff! A tip of the hat for such an interesting paper!