Accounting for distress in bank mergers

M. Koetter*, J. W. B. Bos, F. Heid, J. W. Kolari, C. J. M. Kool, D. Porath

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

32 Citations (Web of Science)

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.
Original languageEnglish
Pages (from-to)3200-3217
JournalJournal of Banking & Finance
Volume31
Issue number10
DOIs
Publication statusPublished - Oct 2007
Externally publishedYes

Keywords

  • mergers
  • bailout
  • x-efficiency
  • multinomial logit

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