Accounting for Distress in Bank Mergers
Deutsche Bundesbank Discussion Paper No. 2
48 Pages Posted: 3 Oct 2005 Last revised: 19 Oct 2011
Date Written: September 2005
The inability of most bank merger studies to control for hidden bailouts may lead to biased results. In this study, we employ a unique data set of approximately 1,000 mergers to analyze the determinants of bank mergers. We use data on the regulatory intervention history to distinguish between distressed and non-distressed mergers. We find that, among merging banks, distressed banks had the worst profiles and acquirers perform somewhat better than targets. However, both distressed and non-distressed mergers have worse CAMEL profiles than our control group. In fact, non-distressed mergers may be motivated by the desire to forestall serious future financial distress and prevent regulatory intervention.
Keywords: Mergers, bailout, X-efficiency, multinomial logit
JEL Classification: G21, G34, G14
Suggested Citation: Suggested Citation