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Working Paper
How much would banks be willing to pay to become \"too-big-to-fail\" and to capture other benefits?
This paper examines an important aspect of the ?too-big-to-fail? (TBTF) policy employed by regulatory agencies in the United States. How much is it worth to become TBTF? How much has the TBTF status added to bank shareholders? wealth? Using market and accounting data during the merger boom (1991-2004) when larger banks greatly expanded their size through mergers and acquisitions, we find that banking organizations are willing to pay an added premium for mergers that will put them over the asset sizes that are commonly viewed as the thresholds for being TBTF. We estimate at least $14 billion ...
Working Paper
Investment opportunity set, product mix, and the relationship between bank CEO compensation and risk-taking
The product mix changes that have occurred in banking organizations during the 1990s provide a natural experiment for investigating how firms adjust their executive compensation contracts as their mix of businesses changes. Deregulation and new technology have eroded banking organizations? comparative advantages and have made it easier for nonbank competitors to enter banking organizations? lending and deposit-taking businesses. In response, banking organizations have shifted their sale mix toward noninterest income by engaging in municipal revenue bond underwriting, commercial paper ...
Working Paper
Impact of independent directors and the regulatory environment on bank merger prices: evidence from takeover activity in the 1990s
This article examines the primary motivation of the bank merger waves in the 1990s. Our investigation of the factors that determine bid premiums paid for target banks focuses on the importance of the financial characteristics of the targets, composition of their boards of directors, and the regulatory environment. ; The value of the target bank to the acquiring bank should reflect its present discounted value of future net cash flows. Thus, at a minimum, the bid price should be a combination of the stand-alone value of the net assets of the target bank and the net cash flows from ...