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The Paradox of Priority

Author

Listed:
  • Stanley D. Longhofer
  • Joao A.C. Santos

Abstract

There is a paradox in bank mergers. On average, bank mergers do not create value, yet they continue to occur. Using cross-sectional analysis to examine 54 bank mergers announced between 1991 and 1995, I test several facets of focus and diversification. Upon announcement, the market rewards the mergers of partners that focus their geography and activities and earnings streams. Only one of these facets, focusing earnings streams, enhances long-term performance. Two other circumstances improve long-term performance: when a merger involves a relatively inefficient acquirer and when partners reduce bankruptcy costs.

Suggested Citation

  • Stanley D. Longhofer & Joao A.C. Santos, 2003. "The Paradox of Priority," Financial Management, Financial Management Association, vol. 32(1), Spring.
  • Handle: RePEc:fma:fmanag:longhofersantos03
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    Citations

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    Cited by:

    1. Haubrich, Joseph G. & Santos, Joao A. C., 2005. "Banking and commerce: A liquidity approach," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 271-294, February.
    2. John Armour, 2008. "The Law and Economics Debate about Secured Lending: Lessons for European LawMaking?," Working Papers wp362, Centre for Business Research, University of Cambridge.
    3. Mateut, Simona, 2014. "Reverse trade credit or default risk? Explaining the use of prepayments by firms," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 303-326.
    4. Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2013. "Are trade creditors relationship lenders?," Japan and the World Economy, Elsevier, vol. 25, pages 24-38.
    5. Simona Mateut & Thanaset Chevapatrakul, 2016. "Customer financing, bargaining power and trade credit uptake," Discussion Papers 2016/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    6. Martin Boyer, M. & Gobert, Karine, 2009. "The impact of switching costs on vendor financing," Finance Research Letters, Elsevier, vol. 6(4), pages 236-241, December.
    7. Frederic Boissay & Reint Gropp, 2007. "Trade Credit Defaults and Liquidity Provision by Firms," Working Paper Series: Finance and Accounting 179, Department of Finance, Goethe University Frankfurt am Main.
    8. John Armour, 2006. "Should we redistribute in insolvency," Working Papers wp319, Centre for Business Research, University of Cambridge.
    9. Mariarosaria Agostino & Francesco Trivieri, 2014. "Does trade credit play a signalling role? Some evidence from SMEs microdata," Small Business Economics, Springer, vol. 42(1), pages 131-151, January.
    10. Ellingsen, Tore & Jacobson, Tor & von Schedvin, Erik, 2016. "Trade Credit: Contract-Level Evidence Contradicts Current Theories," Working Paper Series 315, Sveriges Riksbank (Central Bank of Sweden).
    11. El Ghoul, Sadok & Zheng, Xiaolan, 2016. "Trade credit provision and national culture," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 475-501.
    12. Simona Mateut & Paul Mizen & Ydriss Ziane, "undated". "No Going Back: How the Production Process Affects Access to Short-term Credit," Discussion Papers 12/14, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    13. Simona Mateut & Paul Mizen & Ydriss Ziane, "undated". "No Going Back: The Interactions Between Processed Inventories and Trade Credit," Discussion Papers 11/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    14. Beatty, Anne & Liao, Scott & Weber, Joseph, 2012. "Evidence on the determinants and economic consequences of delegated monitoring," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 555-576.
    15. Mateut, Simona & Mizen, Paul & Ziane, Ydriss, 2015. "Inventory composition and trade credit," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 434-446.

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