Agricultural bank acquisitions and postacquisition performance: An examination of the role of shared knowledge

Abstract

AbstractThe US banking sector has consolidated through acquisitions in recent decades, resulting in a significant decrease in the number of lending institutions. Agricultural commercial banks have been preferred target of such acquisitions, representing 15%–40% of all acquisitions between 1994 and 2018. In this study, we examine the postacquisition performance of banks that acquire agricultural banks in terms of profitability, bankruptcy risk, and loan monitoring process between 1994 and 2018. We also test whether the shared knowledge between the acquiring bank and the target bank in terms of geography, product, and culture affect the postacquisition outcomes. While we document improved profitability from agricultural bank acquisitions, the improvement is rather short‐lived without long‐term benefits. Also, we do not find improvement in other performance measures. Also, we find a negative effect of cultural knowledge, highlighting the complex implications of acquisitions. [EconLit Citations: G21, G34, Q1].