Thrift Conversions and Windfall Profits: An Empirical Examination

Posted: 3 Nov 1999

See all articles by Daniel E. Page

Daniel E. Page

Auburn University - Harbert College of Business

Gene R. Pettigrew

Auburn University - Harbert College of Business

John S. Jahera

Auburn University - Harbert College of Business

James R. Barth

Auburn University; Milken Institute

Abstract

The thrift industry has been studied extensively in recent years due to the enormous costs to resolve failed thrifts during the late 1980s and early 1990s. Almost all of the studies have focused on the causes of these failures. Yet, an important but relatively neglected development that merits further study is the conversion of mutual institutions to the stock form of ownership. Such conversions raise questions regarding the appropriate price for the shares in initial offerings, particularly in view of reports that windfall profits have been realized by the initial investors in numerous cases and who should receive the shares. The purpose of this paper is to examine mutual thrifts that converted to stock ownership form during 1992 and 1993 to determine whether excess returns were indeed realized and, if so, to identify the determinants of those excess returns. The empirical results indicate the initial investors do indeed benefit from significantly positive abnormal returns during the first few days of trading after conversion. Additional empirical results indicate that both the pro-forma price-to-book ratio and the dollar amount of shares management intends to purchase are significant factors in explaining the variation in the abnormal returns.

JEL Classification: G21, G31, G32

Suggested Citation

Page, Daniel E. and Pettigrew, Gene R. and Jahera, John S. and Barth, James R., Thrift Conversions and Windfall Profits: An Empirical Examination. Available at SSRN: https://ssrn.com/abstract=181351

Daniel E. Page (Contact Author)

Auburn University - Harbert College of Business ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States
334-844-6211 (Phone)
334-844-4960 (Fax)

Gene R. Pettigrew

Auburn University - Harbert College of Business

415 Magnolia Ave.
Auburn, AL 36849
United States
334-844-5344 (Phone)

John S. Jahera

Auburn University - Harbert College of Business ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States
334-844-5344 (Phone)

James R. Barth

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-2469 (Phone)
334-844-4960 (Fax)

Milken Institute ( email )

1250 Fourth Street
Santa Monica, CA 90401
United States

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