The impact of bank mergers on liquidity creation

Abstract

Using 189 commercial bank mergers between 1997 and 2004, a positive impact of the merger activity on bank liquidity creation is demonstrated. Consistent with the deposit insurance hypothesis, it is found that banks with higher levels of deposit insurance create higher levels of liquidity around mergers. Furthermore, evidence is provided that the level of equity capital explains the change in liquidity creation around mergers for the sample of large acquirers. Also it is shown that for the sample of small acquirers there is a negative relationship between the level of economic growth and changes in liquidity creation around mergers.