Entry, Exit and Growth of US Commercial Banks
36 Pages Posted: 21 Feb 2014
Date Written: February 20, 2014
We investigate the entry, exit and growth of commercial banks in the United States (US) during the period 1984-2012. Hazard function estimations for the probability of exit via acquisition and failure, and cross-sectional growth regressions examine the impact of exit through merger and acquisition (M&A) or failure, and internally-generated growth. The hazard of disappearance via acquisition is inversely to asset size and quality, profitability, managerial efficiency and capitalization, and positively related to liquidity. Small banks with a higher proportion of their assets in lending, and small banks with high credit risk, are more likely to fail. We report evidence of an inverse relationship between bank size and growth, and some evidence of persistence in growth performance from one year to the next among smaller banks.
Keywords: Acquisition, Commercial Banks, Community Banks, Entry, Failure, Gibrat’s Law, Mergers, Sample selection models
JEL Classification: G21, L11
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