Advanced Search
MyIDEAS: Login to save this article or follow this journal

Why do Banks Disappear? The Determinants of U.S. Bank Failures and Acquisitions

Contents:

Author Info

  • David C. Wheelock
  • Paul W. Wilson

Abstract

This paper seeks to identify the characteristics that make individual U.S. banks more likely to fail or be acquired. We use bank-specific information to estimate competing-risks hazard models with time-varying covariates. We use alternative measures of productive efficiency to proxy management quality, and find that inefficiency increases the risk of failure while reducing the probability of a bank's being acquired. Finally, we show that the closer to insolvency a bank is (as reflected by a low equity-to-assets ratio) the more likely is its acquisition. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/003465300558560
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 82 (2000)
Issue (Month): 1 (February)
Pages: 127-138

as in new window
Handle: RePEc:tpr:restat:v:82:y:2000:i:1:p:127-138

Contact details of provider:
Web page: http://mitpress.mit.edu/journals/

Order Information:
Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, Elsevier, vol. 19(2-3), pages 233-238, August.
  2. Allen N. Berger & David B. Humphrey, 1992. "Megamergers in banking and the use of cost efficiency as an antitrust defense," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 203, Board of Governors of the Federal Reserve System (U.S.).
  3. Lawrence F. Katz & Bruce D. Meyer, 1988. "Unemployment Insurance, Recall Expectations, And Unemployment Outcomes," NBER Working Papers 2594, National Bureau of Economic Research, Inc.
  4. Kaparakis, Emmanuel I & Miller, Stephen M & Noulas, Athanasios G, 1994. "Short-Run Cost Inefficiency of Commercial Banks: A Flexible Stochastic Frontier Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 26(4), pages 875-93, November.
  5. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, Elsevier, vol. 6(1), pages 21-37, July.
  6. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, Elsevier, vol. 2(6), pages 429-444, November.
  7. Kneip, A & Park, B-U & Simar, L, 1996. "A Note on the Convergence of Nonparametric DEA Efficiency Measures," Papers, Catholique de Louvain - Institut de statistique 9603, Catholique de Louvain - Institut de statistique.
  8. Waldman, Donald M., 1982. "A stationary point for the stochastic frontier likelihood," Journal of Econometrics, Elsevier, Elsevier, vol. 18(2), pages 275-279, February.
  9. Cornett, Marcia Millon & Tehranian, Hassan, 1992. "Changes in corporate performance associated with bank acquisitions," Journal of Financial Economics, Elsevier, Elsevier, vol. 31(2), pages 211-234, April.
  10. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, Elsevier, vol. 46(1-2), pages 229-245.
  11. Wheelock, David C & Wilson, Paul W, 1995. "Explaining Bank Failures: Deposit Insurance, Regulation, and Efficiency," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 77(4), pages 689-700, November.
  12. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1996. "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  13. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, INFORMS, vol. 30(9), pages 1078-1092, September.
  14. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(3), pages 501-520, December.
  15. Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, Elsevier, vol. 17(2-3), pages 221-249, April.
  16. Richard S. Barr & Thomas F. Siems, 1994. "Predicting bank failure using DEA to quantify management quality," Financial Industry Studies Working Paper, Federal Reserve Bank of Dallas 94-1, Federal Reserve Bank of Dallas.
  17. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June.
  18. repec:fth:louvco:9639 is not listed on IDEAS
  19. Dean F. Amel & Stephen A. Rhoades, 1989. "Empirical Evidence on the Motives for Bank Mergers," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 15(1), pages 17-27, Jan-Mar.
  20. Hannan, Timothy H & Rhoades, Stephen A, 1987. "Acquisition Targets and Motives: The Case of the Banking Industry," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 69(1), pages 67-74, February.
  21. Fare, Rolf & Shawna Grosskopf & Mary Norris & Zhongyang Zhang, 1994. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 66-83, March.
  22. Oulton,Nicholas & O'Mahony,Mary, 1994. "Productivity and Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521453455.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:82:y:2000:i:1:p:127-138. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.