The real effects of distressed bank mergers

Schmidt, Christian ; Theissen, Erik ; Dinger, Valeriya

Document Type: Conference presentation
Year of publication: 2020
Conference title: American Finance Association 2020 Annual Meeting
Location of the conference venue: San Diego, CA
Date of the conference: 03.-05.01.2020
Publication language: English
Institution: Business School > ABWL, Risikotheorie, Portfolio Management u. Versicherungswissenschaft (Albrecht 1989-2021)
Business School > ABWL u. Finanzierung (Theissen 2009-)
Außerfakultäre Einrichtungen > Institut für Versicherungswissenschaft
Subject: 330 Economics
Classification: JEL: E44, G21,
Keywords (English): bank disttress , merger , growth , real effects
Abstract: In this paper we revisit the question whether negative shocks to banks have adverse real economic effects. We analyze German savings banks and propose a new identification strategy. We consider distressed mergers and interpret them as 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 who cut back their investments and (iii) the overall macroeconomic dynamics in the region of the acquirer deteriorates, leading to lower investment and employment growth. To justify a causal interpretation of our results we perform several additional tests that establish the exogeneity of the shock to the acquiring bank with respect to local economic dynamics.

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