Accounting for Distress in Bank Mergers

18 Pages Posted: 8 Nov 2007

See all articles by Michael Koetter

Michael Koetter

Halle Institute for Economic Research

Jaap W.B. Bos

Maastricht University

Frank Heid

Deutsche Bundesbank

James W. Kolari

Texas A&M University - Department of Finance

Clemens J.M. Kool

Utrecht University - School of Economics

Daniel Porath

University of Applied Sciences Mainz

Multiple version iconThere are 3 versions of this paper

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 nondistressed 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.

Keywords: Mergers, Bailout, X-efficiency, Multinomial logit

JEL Classification: G21, G34, G14, G24

Suggested Citation

Koetter, Michael and Bos, Jaap W.B. and Heid, Frank and Kolari, James W. and Kool, Clemens J.M. and Porath, Daniel, Accounting for Distress in Bank Mergers. Journal of Banking and Finance, Vol. 31, No. 10, 2007. Available at SSRN: https://ssrn.com/abstract=1028336

Michael Koetter (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

Jaap W.B. Bos

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Frank Heid

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

James W. Kolari

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

Clemens J.M. Kool

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Daniel Porath

University of Applied Sciences Mainz ( email )

An der Bruchspitze 50
Mainz 55122
Germany

HOME PAGE: http://www.fh-mainz.de/index.php?id=5726&lastArticle=4692&cHash=b12d1fc2e8#4692

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