Work

The real effects of distressed bank mergers

Year: 2024

Type: article

Abstract: In this paper we employ a novel identification scheme to show the causal effect of negative shocks to banks on the real economy. The identification is based on exploiting distressed mergers of German savings banks. We show that these mergers represent 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 which cut back their investments and reduce employment and (iii) the overall macroeconomic dynamics in the region of the acquirer deteriorates, leading to reductions in investment and employment growth. To support a causal interpretation of our results we also perform several tests that confirm that local economic dynamics is affected by the shock to the acquiring bank and not by real economic contagion.

Source: Journal of Corporate Finance

DOI: 10.1016/j.jcorpfin.2024.102674

Authors: Valeriya Dinger, Christian Schmidt, Erik Theissen

Institutions: University of Leeds, Osnabrück University, University of Mannheim

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $3,650