Preemptive distress resolution through bank mergers

  • This paper suggests a motive for bank mergers that goes beyond alleged and typically unverifiable scale economies: preemtive resolution of banks´ financial distress. Such "distress mergers" can be a significant motivation for mergers because they can foster reorganizations, realize diversification gains, and avoid public attention. However, since none of these potential benefits comes without a cost, the overall assessment of distress mergers is unclear. We conduct an empirical analysis to provide evidence on consequences of distress mergers. The analysis is based on comprehensive data from Germany´s savings and cooperatives banks sectors over the period 1993 to 2001. During this period both sectors faced significant structural problems and superordinate institutions (associations) presumably have engaged in coordinated actions to manage distress mergers. The data comprise 3640 banks and 1484 mergers. Our results suggest that bank mergers as a means of preemtive distress resolution have moderate costs in terms of the economic impact on performance. We do find strong evidence consistent with diversification gains. Thus, distress mergers seem to have benefits without affecting systematic stability adversely.

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Author:Ralf Elsas
Parent Title (English):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 137
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (137)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2004
Year of first Publication:2004
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/10/06
Tag:Bank; Branchenkrise; Deutschland; Fusion; Kreditgenossenschaft; Krisenmanagement; Sparkasse
bank mergers; financial distress; systematic stability
GND Keyword:Deutschland; Sparkasse; Kreditgenossenschaft; Mergers and Acquisitions; Fusion
Issue:This version: September 6, 2004
Page Number:41
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:C Mathematical and Quantitative Methods / C3 Multiple or Simultaneous Equation Models / C33 Models with Panel Data
Licence (German):License LogoDeutsches Urheberrecht