The Impact of Bank Mergers on Liquidity Creation
Illinois Wesleyan University
J. Tim Query
New Mexico State University
Indiana State University
July 1, 2010
Journal of Risk Management in Financial Institutions, Forthcoming
Using 189 commercial bank mergers between 1997 and 2004, we document a positive impact of the merger activity on bank liquidity creation. Consistent with the deposit insurance hypothesis, we find that banks with higher levels of deposit insurance create higher levels of liquidity around mergers. Furthermore, we document that the level of equity capital explains the change in liquidity creation around mergers for the sample of large acquirers. We show that for the sample of small acquirers there is a negative relationship between the level of economic growth and changes in liquidity creation around mergers.
Keywords: Capital Structure, Liquidity Creation, Regulation, and Banking
JEL Classification: G21, G28, G32working papers series
Date posted: October 17, 2009 ; Last revised: September 8, 2010
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