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Accounting for distress in bank mergers

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The inability of most bank merger studies to control for hidden bailouts may lead to biased results. In this study, we employ a unique data set of approximately 1,000 mergers to analyze the determinants of bank mergers. We use data on the regulatory intervention history to distinguish between distressed and non-distressed mergers. We find that, among merging banks, distressed banks had the worst profiles and acquirers perform somewhat better than targets. However, both distressed and non-distressed mergers have worse CAMEL profiles than our control group. In fact, non-distressed mergers may be motivated by the desire to forestall serious future financial distress and prevent regulatory intervention.

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Michael Koetter, Jaap W. B. Bos, Frank Heid, Clemens J. M. Kool, James W. Kolari, Daniel Porath

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Adapt according to the presented license agreement and reference the original author.