Difficult to digest: Takeovers of distressed banks in Vietnam

Giang Phung and Michael Troege

Economics of Transition and Institutional Change, 2022, vol. 30, issue 3, 489-516

Abstract: Government‐induced or voluntary takeovers are frequently used as an indirect way to bail out distressed banks. In this paper, we analyse the impact of acquisitions on banking performance in Vietnam. To demonstrate that the acquirer is not simply inheriting the properties of the underperforming targets, we compare the performance of the merged bank to the pro forma consolidated performance of the acquirer and the target before the merger. We show that takeovers during and after the financial crisis substantially weaken profitability and liquidity and that this negative effect persists for a period of at least 6 years. These findings show that shareholders should be wary of acquisitions and suggest that stabilizing banks through mergers may have detrimental indirect long‐term consequences on the efficiency of financial systems and ultimately economic growth.

Date: 2022
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https://doi.org/10.1111/ecot.12312

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Persistent link: https://EconPapers.repec.org/RePEc:wly:ectrin:v:30:y:2022:i:3:p:489-516

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