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Punished banks' acquisitions: Evidence from the U.S. banking industry

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  • Papadimitri, Panagiota
  • Staikouras, Panagiotis
  • Travlos, Nickolaos G.
  • Tsoumas, Chris

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.

Suggested Citation

  • Papadimitri, Panagiota & Staikouras, Panagiotis & Travlos, Nickolaos G. & Tsoumas, Chris, 2019. "Punished banks' acquisitions: Evidence from the U.S. banking industry," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 744-764.
    • Handle: RePEc:eee:corfin:v:58:y:2019:i:c:p:744-764
    DOI: 10.1016/j.jcorpfin.2019.07.014
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    More about this item

    Keywords

    Bank mergers and acquisitions; Enforcement actions; Inefficient management;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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