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      • HARVEST
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      Why Do Banks Participate in a FDIC Failed Bank Auction? A study on both winning and non-winning bidders’ performance

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      Zhang, Sicong_M12.Sc (1.359Mb)
      Date
      2015-02-07
      Author
      Zhang, Sicong 1989-
      Type
      Thesis
      Degree Level
      Masters
      Metadata
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      Abstract
      The recent Global Financial Crisis provides a great opportunity to study banking mergers, especially ones with failed targets and government assistance. In our study, we adopt multiple approaches to study two main questions. First, we are interested to learn if mergers lead to real economic synergies for combined entities using operating measures. We adopt Propensity Score Matching to compare failed bank acquirers to their close peers. Results show that acquirers in regulatory mergers experience significant improvements in both profitability and cost efficiency immediately after the merger transaction. In addition, we are interested in learning whether participation in a failed bank auction benefits a participant even when this participant is not eventually chosen as the acquirer. Our theory is that participation in the auction reduces information asymmetry and improves the credibility of the participant, a phenomena we call the “Certification Effect”. Traditional event study methodology is applied and results show that acquirers in regulatory mergers tend to experience significantly positive market reaction, which is rationalized by their outperformance in operation. More interesting, we find that the market reaction to first time participation in failed bank auctions is significantly higher than the market reaction to the announcement of participation by an experienced participant. This result holds for both the successful or unsuccessful bidder groups.
      Degree
      Master of Science (M.Sc.)
      Department
      Edwards School of Business
      Program
      Finance
      Committee
      Mamun, Abdullah; Tannous, George; Yu, Miaomiao; Roberts, Gordon S
      Copyright Date
      January 2015
      URI
      http://hdl.handle.net/10388/12652
      Subject
      Failed Bank
      Bank Mergers
      Post-Merger Performance
      Propensity Score Matching
      Event Study
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