Bank Screening and Mergers and Acquisitions: Evidence from Stress Test Failures

56 Pages Posted: 25 Jun 2020 Last revised: 16 Mar 2023

See all articles by Buhui Qiu

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Teng Wang

Board of Governors of the Federal Reserve System; Bank for International Settlements (BIS)

Date Written: March 15, 2023

Abstract

Corporate borrowers of banks that failed stress tests subsequently conduct fewer mergers and acquisitions (M&A). The effect is driven by enhanced ex-ante screening by stress test failure banks on borrower firms’ new M&A projects, as reflected by the improved internal credit rating for newly originated M&A-related loans. Moreover, M&A quality improves only when these deals are financed by new loans arranged by stress test failure banks. Finally, in line with treatment firms refraining from M&A that can harm shareholders, these firms subsequently improve their profitability. Taken
together, the evidence highlights the important spillover of supervisory stress tests on corporate M&A.

Keywords: Mergers and Acquisitions; Ex-ante Bank Screening; Stress Tests Failures

JEL Classification: G21, G34

Suggested Citation

Qiu, Buhui and Wang, Teng, Bank Screening and Mergers and Acquisitions: Evidence from Stress Test Failures (March 15, 2023). Proceedings of Paris December 2020 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3617543 or http://dx.doi.org/10.2139/ssrn.3617543

Buhui Qiu (Contact Author)

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/buhuiq

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Teng Wang

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Bank for International Settlements (BIS)

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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