The effects of bank capital constraints on post-acquisition performance

Chris Brune (), Kevin Lee () and Scott Miller ()

Journal of Economics and Finance, 2015, vol. 39, issue 1, 75-99

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

Keywords: Banks; Bank Mergers; Acquisitions; Capital Constraints; Reserve Requirements; G21; G28; G34 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s12197-012-9239-6

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