An Examination of Non-Government-Assisted US Commercial Bank Mergers During the Financial Crisis

Journal of Economics and Business, Forthcoming

53 Pages Posted: 23 Aug 2013 Last revised: 19 Aug 2016

See all articles by Jessica Kay Dunn

Jessica Kay Dunn

Southern Illinois University at Carbondale - Department of Finance

Vincent Intintoli

Clemson University, Department of Finance

Jamie John McNutt

Southern Illinois University at Carbondale - Department of Finance

Date Written: September 10, 2014

Abstract

In this study, we examine non-government-assisted US commercial bank merger activity prior to, and during the recent financial crisis. Mergers that occur throughout the crisis appear to be more significant events for both targets and acquirers. Acquirers seek out relatively larger targets during the crisis and offer premiums are higher than pre-crisis values. Valuation discrepancies between targets and acquirers are also greater for crisis period mergers, suggesting that merger gains outweigh presumably high capital reallocation costs. Acquirers have lower capital ratios than their peers during the crisis, indicating that they may use mergers defensively as recapitalization events. However, crisis period mergers do not appear to be motivated by asset-based liquidity concerns for either the target or acquirer. Examining how firm characteristics relate to value creation, we find targets that are undervalued relative to their acquirers see larger offer premiums during the crisis, but not before. Targets with poorer-performing loan portfolios, however, observe lower offer premiums during the crisis. Lastly, we find overall merger announcement value creation during the financial crisis is greater when targets have higher quality assets, are better capitalized, and are less efficient.

Keywords: Financial institutions, Mergers, Financial crisis, CAMELS

JEL Classification: G01, G21, G34

Suggested Citation

Dunn, Jessica Kay and Intintoli, Vincent and McNutt, Jamie John, An Examination of Non-Government-Assisted US Commercial Bank Mergers During the Financial Crisis (September 10, 2014). Journal of Economics and Business, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2314616 or http://dx.doi.org/10.2139/ssrn.2314616

Jessica Kay Dunn

Southern Illinois University at Carbondale - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States

Vincent Intintoli (Contact Author)

Clemson University, Department of Finance ( email )

Clemson, SC 29634
United States
864-656-2263 (Phone)

Jamie John McNutt

Southern Illinois University at Carbondale - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States

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