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The effect of mergers on credit union performance

  • Bauer, Keldon J.
  • Miles, Linda L.
  • Nishikawa, Takeshi
Registered author(s):

    The motivation for mergers in the credit union industry differs from the commercial bank industry due to the lack of residual claimants to benefit from wealth gains. In the cooperative ownership environment of credit unions, the owners/members gain utility via the rates offered for loans and deposits. Credit union regulators also gain utility when mergers remove risky credit unions from the industry. We measure these utility gains using the event study method of Bauer [Bauer, K., 2008. Detecting abnormal credit union performance. Journal of Banking and Finance 32, 573-586] employing quadrant tests based on a multivariate test of equality of centroids. We find gains to the owners/members of the target credit union and to the regulators but not to the acquiring firm. We posit that the acquiring credit unions may encounter regulatory pressure to merge. In addition, the owners/members of the acquiring firm may avoid potential disutility in the cooperative insurance environment were the target firm allowed to fail.

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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 33 (2009)
    Issue (Month): 12 (December)
    Pages: 2267-2274

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    Handle: RePEc:eee:jbfina:v:33:y:2009:i:12:p:2267-2274
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    4. Ralston, Deborah & Wright, April & Garden, Kaylee, 2001. "Can mergers ensure the survival of credit unions in the third millennium?," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2277-2304, December.
    5. Koetter, Michael & Bos, Jaap W. B. & Heid, Frank & Kool, Clemens J. M. & Kolari, James W. & Porath, Daniel, 2005. "Accounting for distress in bank mergers," Discussion Paper Series 2: Banking and Financial Studies 2005,09, Deutsche Bundesbank, Research Centre.
    6. Andrew C. Worthington, 2001. "Efficiency in pre-merger and post-merger non-bank financial institutions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(8), pages 439-452.
    7. Garden, Kaylee A. & Ralston, Deborah E., 1999. "The x-efficiency and allocative efficiency effects of credit union mergers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(3), pages 285-301, August.
    8. Harold O. FRIED & C. A. KNOX LOVELL, 1994. "Enhancing The Performance of Credit Unions : The Evolution of a Methodology," Discussion Papers (REL - Recherches Economiques de Louvain) 1994042, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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    15. Scott Frame, W. & Karels, Gordon V. & McClatchey, Christine A., 2003. "Do credit unions use their tax advantage to benefit members? Evidence from a cost function," Review of Financial Economics, Elsevier, vol. 12(1), pages 35-47.
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