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FDIC Working Papers Series

Merger Activity as a Determinant of De Novo Entry into Urban Banking Markets

1 See, for example, Gilbert (1974) and Hanweck (1971).

2 Similar studies of the performance of de novo savings and loans were done by Hunter, Verbrugge, and Whidbee (1996) and Lindley, Verbrugge, McNulty, and Gup (1992).

3 Examples of this literature are Goldberg and White (1997) and DeYoung, Goldberg, and White (1999).

4 Hanweck (1971), 168.

5 Gilbert (1974), 151.

6Ibid., 159.

7To arrive at his definition of secondary market, he excludes Dallas, Fort Worth, Houston, and San Antonio. The Midland and Odessa SMSAs are also treated as one banking market.

8 Since Texas was a unit banking state, it is uncertain as to how much the inability of banks to merge, outside of holding company acquisitions, biased the sample used.

9 Some MSAs were excluded from the study because they did not contain the headquarters of any bank or thrift, and others were excluded because data for certain variables were unavailable.

10 Since economic profits are not readily available, accounting profits are used as a proxy. The use of accounting profits may bias the results because they will understate economic profits, since accounting profits are short-run measures and are managed so as to minimize tax liabilities.

11 As an alternative to ROA we also tested lagged return on equity (ROE) for all specifications and found the variable to be insignificant.

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