Evidence on the Role of Holding Company Acquisitions in the Management of Bank Capital

Journal of Financial Services Research, February 1989, Volume 2, Issue 1, pp 21-37

Posted: 27 Aug 2014

See all articles by Drew Dahl

Drew Dahl

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Ronald E. Shrieves

University of Tennessee, Knoxville - Department of Finance

Date Written: February 1, 1998

Abstract

This article addresses the issue of the impact of bank acquisitions on the capital positions of acquired banks. The hypothesis tested is that acquisition-related capital changes reflect divergent capital-related acquisition motives which induce significant infusion of capital into some acquired banks and significant withdrawals from others.

This study confirms that,on average, bank holding company acquisitions reduce the relative capital position of acquired banks, but it also indicates that this average effect masks evidence that acquisitions contribute to relative increases in capital in a significant subset of acquired banks. The results herein demonstrate that results of prior studies regarding the impact of acquisition and/or holding company affiliation on bank capital positions suffer from misspecification.

The finding that there are divergent implications of acquisition for capital growth is consistent with the notion that acquisitions by bank holding companies may be providing important financial synergies to the banking industry by serving as a mechanism for relatively efficient reallocation of equity capital among affiliated banks.

Suggested Citation

Dahl, Drew and Shrieves, Ronald E., Evidence on the Role of Holding Company Acquisitions in the Management of Bank Capital (February 1, 1998). Journal of Financial Services Research, February 1989, Volume 2, Issue 1, pp 21-37, Available at SSRN: https://ssrn.com/abstract=2487447

Drew Dahl

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States

Ronald E. Shrieves (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States

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