Abstract
The large wave of bank mergers, which had affected the US bank sector in the years leading 2007-2009 crisis, experienced a sudden decline in both volume and value in the post-financial crisis period. This study examines whether TARP banks, i.e. banks that received government financial support during the recent 2007-2009 crisis, differed in terms of M&A financial performance outcomes in the pre and post financial crisis periods compared to non-TARP recipients. We find significant and differences in the post-merger financial performance of TARP recipients compared to non-TARP recipients in the post financial crisis period but no significant differences in their pre-merger performance. Our results infer differences in merger motivations for TARP and non-TARP banks.
Highlights
The number of commercial banks in the U.S has decreased rapidly in the last decade
An important empirical question yet to be suitably examined, which we address in the current paper, pertains to whether the Mergers and acquisitions (M&As) undertook by Troubled Asset Support Program (TARP) recipients have different impact on post-acquisition performance compare to non-recipients around the financial crisis of 2007-09
For the Non-TARP banks, operating cash flow performance deteriorates in the post-merger period, while TARP banks have a larger decrease in operating cash flow returns on assets (OPCFROA) compare to Non-TARP banks at 1 percent significant level
Summary
The number of commercial banks in the U.S has decreased rapidly in the last decade. Number of U.S commercial bank charters fell by 13.7 percent (from 8,579 to 7,391) between 2000 and 2006, and by an additional 17.5 percent (from 7,391 to 6,101) between 2007 and 2012 [1]. We find that TARP banks experience significantly larger deteriorations in post-merger performance compare to non-TARP recipients in terms of changes in operating cash flows and declines in profit efficiency, operating efficiency and asset quality indicators. Some research in the 1990s compares financial ratio indicators for pre- and post-merger periods to examine impacts of mergers on operating costs and profits.
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