The Long-Run Benefits of Losing Failed Bank Auctions

64 Pages Posted: 24 Mar 2022

See all articles by Amanda Heitz

Amanda Heitz

A.B. Freeman School of Business Tulane University

Date Written: January 31, 2022

Abstract

Using a proprietary database of failed bank auction participants, I examine whether acquiring a failed bank creates shareholder value by using the losers' post-acquisition performance as a counterfactual. In the three years post-acquisition, acquirers with Shared-Loss Agreements (SLAs), where the FDIC absorbs approximately 80% of losses, realize abnormal returns that are 19.8% lower than auction losers. Inconsistent with the effects of a winner's curse, returns are not related to bidder competition. However, post-acquisition, acquirers with SLAs realize declines in volatility and lending risk, suggesting that a reduction in risk plays a role in explaining this divergence in long-run returns.

Keywords: financial institutions, regulation, market efficiency, auctions

JEL Classification: G01, G14, G21, G28, D44

Suggested Citation

Heitz, Amanda, The Long-Run Benefits of Losing Failed Bank Auctions (January 31, 2022). Available at SSRN: https://ssrn.com/abstract=4021823 or http://dx.doi.org/10.2139/ssrn.4021823

Amanda Heitz (Contact Author)

A.B. Freeman School of Business Tulane University ( email )

6823 Saint Charles Avenue
New Orleans, LA
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
39
Abstract Views
232
PlumX Metrics