Abnormal Returns to Public and Private Acquirers of Failed Banks: Evaluating the Effectiveness of the FDIC

53 Pages Posted: 11 Jul 2012

See all articles by Susan Kerr Christoffersen

Susan Kerr Christoffersen

University of Toronto - Rotman School of Management; Copenhagen Business School

Richard M. Hynes

University of Virginia School of Law

Steven D. Walt

University of Virginia School of Law

Date Written: July 11, 2012

Abstract

We ask whether the financial health of the FDIC limits its ability to efficiently resolve failed institutions. Consistent with this hypothesis, we find acquirers experience large and long-lasting abnormal returns around the announcement of a failed bank acquisition when the deposit insurance fund is experiencing large outflows. This effect is not arising from positive information revealed about the acquirer at the announcement or from changes in the competitiveness of bidding. We also document that public acquirers experience higher abnormal returns than their private counterparts and unlike prior studies, control for this selection bias in our estimation of abnormal returns.

Keywords: Banking, crises, mergers, selection models, event study

JEL Classification: G01, G21, G28, G34

Suggested Citation

Christoffersen, Susan E. and Hynes, Richard M. and Walt, Steven D., Abnormal Returns to Public and Private Acquirers of Failed Banks: Evaluating the Effectiveness of the FDIC (July 11, 2012). Rotman School of Management Working Paper No. 2103810, 7th Annual Conference on Empirical Legal Studies Paper, Available at SSRN: https://ssrn.com/abstract=2103810 or http://dx.doi.org/10.2139/ssrn.2103810

Susan E. Christoffersen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416 946 5647 (Phone)
416 971 3048 (Fax)

HOME PAGE: http://www.rotman.utoronto.ca/schristoffersen

Copenhagen Business School

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Richard M. Hynes

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-924-3743 (Phone)

Steven D. Walt

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
804-924-7930 (Phone)
804-924-7536 (Fax)

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