WEALTH EFFECTS FROM ACQUIRING FAILED THRIFTS SINCE FIRREA

Jeff Madura and Ann Marie Whyte

Review of Financial Economics, 1992, vol. 2, issue 1, 17-30

Abstract: This study investigates the market reaction to acquisitions of failed thrifts since the passage of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989. The study also assesses the influence of various factors on the share price response across acquirers. In general, the market reaction to the acquisitions is negative. Cross‐sectional regression analysis reveals that acquisitions are likely to be more beneficial when they reflect industry diversification, a higher degree of government assistance, and less intense bidding for failed target thrifts. Our findings differ from previous studies which have documented a favorable share price response to assisted aquisitions. Apparently, the change in the amount and type of government assistance in the post‐FIRREA period has affected the market reaction. Since the Resolution Trust Corporation controls the government assistance and the intensity of bidding for failed thrifts, its actions have a significant impact on the share price response to acquisitions. The results of the analysis are relevant to potential acquirers of failed thrifts, regulatory agencies, and taxpayers.

Date: 1992
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https://doi.org/10.1002/j.1873-5924.1992.tb00553.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:2:y:1992:i:1:p:17-30

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