Abnormal Returns to Public and Private Acquirers of Failed Banks : Evaluating the Effectiveness of the FDIC

We ask whether the financial health of the FDIC limits its ability to efficiently resolve failed institutions. Consistent with this hypothesis, we find acquirers experience large and long-lasting abnormal returns around the announcement of a failed bank acquisition when the deposit insurance fund is experiencing large outflows. This effect is not arising from positive information revealed about the acquirer at the announcement or from changes in the competitiveness of bidding. We also document that public acquirers experience higher abnormal returns than their private counterparts and unlike prior studies, control for this selection bias in our estimation of abnormal returns