Punished Banks’ Acquisitions: Evidence from the U.S. Banking Industry
62 Pages Posted: 15 Feb 2018 Last revised: 18 Apr 2019
Date Written: March 5, 2019
Abstract
We study whether formal enforcement actions, imposed on U.S. banks during 2000-2014 for serious financial safety and internal control problems, affect the probability that punished banks become targets of mergers and acquisitions (M&As). We find an increase in the probability of punished banks’ acquisitions of at least 0.7%. A similar pattern is identified during both the financial crisis period of 2008-2009 and beyond the 2008-2009 period. Furthermore, these acquisitions improve the operating performance of post-acquisition combined entity, lending support to the hypothesis that punished banks’ M&As serve as a means to replace inefficient management and restore the target banks’ performance.
Keywords: bank mergers & acquisitions, enforcement actions, inefficient management
JEL Classification: G21, G28, G34
Suggested Citation: Suggested Citation