The Real Effects of Distressed Bank Mergers

64 Pages Posted: 15 Jun 2021

See all articles by Valeriya Dinger

Valeriya Dinger

Universität Osnabrück

Christian Schmidt

University of Mannheim

Erik Theissen

University of Mannheim - Finance Area

Date Written: June 11, 2021

Abstract

In this paper we employ a novel identification scheme to show the causal effect of negative shocks to banks on the real economy. The identification is based on exploiting distressed mergers of German savings banks. We show that these mergers represent exogenous shocks to the (initially non-distressed) acquiring bank. We find that in the years after a distressed merger: (i) the performance of acquiring savings banks deteriorates; (ii) the shock is transmitted to firms in the acquirer’s region which cut back their investments and reduce employment and (iii) the overall macroeconomic dynamics in the region of the acquirer deteriorates, leading to reductions in investment and employment growth. To support a causal interpretation of our results we also perform several tests that confirm that local economic dynamics is affected by the shock to the acquiring bank and not by real economic contagion.

Keywords: Bank distress, merger, growth, real e ects

JEL Classification: E44, G21

Suggested Citation

Dinger, Valeriya and Schmidt, Christian and Theissen, Erik, The Real Effects of Distressed Bank Mergers (June 11, 2021). Available at SSRN: https://ssrn.com/abstract=3865127 or http://dx.doi.org/10.2139/ssrn.3865127

Valeriya Dinger

Universität Osnabrück ( email )

Neuer Graben
Osnabrück, 49074
Germany

Christian Schmidt

University of Mannheim ( email )

L9, 1-2
Mannheim, 68131
Germany

HOME PAGE: http://https://www.bwl.uni-mannheim.de/en/albrecht/team/doctoral-students/schmidt/

Erik Theissen (Contact Author)

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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