Accounting for distress in bank mergers |
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| Authors: | M Koetter JWB Bos F Heid JW Kolari CJM Kool D Porath |
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| Institution: | 1. University of Groningen, Faculty of Economics, P.O. Box 800, 9700 AV Groningen, The Netherlands;2. Deutsche Bundesbank, P.O. Box 10 06 02, 60006 Frankfurt a. M., Germany;3. The Kiel Institute for the World Economy, Düsternbrooker Weg 120, 24105 Kiel, Germany;4. Utrecht School of Economics, Utrecht University, Janskerkhof 12, 3511 BL Utrecht, The Netherlands;5. Mays Business School, Department of Finance, Texas A&M University, College Station, TX, United States;6. University of Applied Sciences, An der Bruchspitze 50, 55122 Mainz, Germany |
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| Abstract: | Most bank merger studies do not control for hidden bailouts, which may lead to biased results. In this study we employ a unique data set of approximately 1000 mergers to analyze the determinants of bank mergers. We use undisclosed information on banks’ regulatory intervention history to distinguish between distressed and non-distressed mergers. Among merging banks, we find that improving financial profiles lower the likelihood of distressed mergers more than the likelihood of non-distressed mergers. The likelihood to acquire a bank is also reduced but less than the probability to be acquired. Both distressed and non-distressed mergers have worse CAMEL profiles than non-merging banks. Hence, non-distressed mergers may be motivated by the desire to forestall serious future financial distress and prevent regulatory intervention. |
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| Keywords: | G21 G34 G14 |
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