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The effects of bank capital constraints on post-acquisition performance

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  • Chris Brune
  • Kevin Lee
  • Scott Miller

Abstract

Researchers have shown that capital constrained firms make better acquisition decisions. However, the literature on bank mergers and acquisitions is silent on this issue. We investigate whether banks constrained by capital requirements make better acquisition decisions than non-constrained banks. We also examine the characteristics of acquisitions to identify the determinants of positive post-acquisition performance. While there are few capital constrained banks that make acquisitions, those that do demonstrate better post-acquisition performance than their non-constrained counterparts. On average, capital constrained banks pay a lower premium for their target and favor cash over equity financing. We also find that capital constrained banks improve their capital ratios in the years after the acquisition. We employ two-way clustered error regressions using alternative definitions of capital constraint. We also provide a matched pair analysis to confirm that our results are robust. Copyright Springer Science+Business Media, LLC 2015

Suggested Citation

  • Chris Brune & Kevin Lee & Scott Miller, 2015. "The effects of bank capital constraints on post-acquisition performance," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 75-99, January.
    • Handle: RePEc:spr:jecfin:v:39:y:2015:i:1:p:75-99
    DOI: 10.1007/s12197-012-9239-6
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    2. Mittal, Amit & Garg, Ajay Kumar, 2017. "Why do acquirers prefer M&A? Evidence from Banks in India," MPRA Paper 85354, University Library of Munich, Germany.
    3. Jennifer Brodmann & Charles Armah Danso & Thanh Ngo, 2022. "Geographic strategies in mergers and acquisitions by financial institutions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3319-3363, September.

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    More about this item

    Keywords

    Banks; Bank Mergers; Acquisitions; Capital Constraints; Reserve Requirements; G21; G28; G34;
    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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