Federal Reserve System and the Conference of State Bank Supervisors

Community Banking in the 21st Century

October 3, 2013, Federal Reserve Bank of St. Louis

Timothy Yeager, The Effect of Distance on Community Bank Performance Following Acquisitions and Reorganizations

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Tim Yeager, an associate professor of finance at the University of Arkansas, presents his paper “The Effect of Distance on Community Bank Performance Following Acquisitions and Reorganizations,” co-written with Gary Ferrier, also a professor at the University of Arkansas. The authors find that long-distance acquisitions are less profitable and riskier than near-distance acquisitions for the three-year period following.

The Effect of Distance on Community Bank Performance Following Acquisitions and Reorganizations (PDF)

Abstract: We analyze the efficiency and performance of more than 2,000 U.S. community bank acquisitions and reorganizations between 1988 and 2002. Post-acquisition bank performance deteriorates with the geographic distance between the target and the acquirer. In contrast, bank performance following reorganization (charter consolidation) of a given bank-holding company improves with the distance between affiliates. We argue that distance between the target and the acquirer harms performance because high information and monitoring costs overwhelm any diversification benefits. Conversely, reorganizations benefit geographically distant entities the most precisely because these firms have the most to gain from reducing information and monitoring costs.

Conference Videos

Welcome & Overview (Oct. 2)
Moderator: Julie Stackhouse (5:29)

Opening Remarks
John Ryan (4:58)
James Bullard (4:39)
Ben Bernanke (8:40)

Research Session 1: The Role of Community Banks
Research Session 1 Moderator: Scott E. Hein (5:35)
Do Community Banks Play a Role in New Firm Survival? (Smith Williams) (18:27)
Equipment Lease Financing: The Role of Community Banks (Mohammed Khayum) (13:24)
Equipment Lease Financing: The Role of Community Banks (Charles Kelly) (14:03)
Small Business Lending and Social Capital: Are Rural Relationships Different? (Kenneth Spong) (25:08)
Bank Failure, Relationship Lending and Local Economic Performance (John Kandrac) (22:32)
Q&A (16:07)

Evening Keynote Address
Dorothy Savarese (38:04)

Community Banking Performance (Oct. 3)
Moderator: Richard Brown (5:07)
Financial Derivatives at Community Banks (Shelly Shen) (11:12)
Lessons from Community Banks that Recovered from Financial Distress (Andrew P. Meyer) (22:40)
The Effect of Distance on Community Bank Performance Following Acquisitions and Reorganizations (Timothy J. Yeager) (20:43)
Performance of Community Banks in Good Times and Bad Times: Does Management Matter? (Dean F. Amel) (17:02)
Research Session 2 Question and Answer Period (21:41)

Supervision and Regulation of Community Banks
Moderator: Lamont Black (4:09)
Estimating Changes in Supervisory Standards and Their Economic Effects (William F. Bassett) (17:23)
The Impact of Dodd-Frank on Community Banks (Tanya D. Marsh) (15:39)
Capital Regulation at Community Banks: Lessons from 400 Failures (Robert R. Moore) (14:39)
A Failure to Communicate: The Pathology of Too Big to Fail (Harvey Rosenblum) (18:15)
Research Session 3 Moderator Wrap-up (14:43)
Audience Question and Answer Session (14:46)

Afternoon Keynote Presentation
Federal Reserve Governor Jerome Powell (28:27)

Panel Discussion and Presentation of Results from Town Hall Sessions
Presenter: Mike Stevens (13:20)

Panel Discussion: Community Banking in the 21st Century: Opportunities, Challenges and Perspectives
Moderator: Charles A. Vice (13:32)
Curt Hecker (7:38)
Bobby P. Martin (12:24)
Thomas E. Spitz (8:30)
Claire W. Tucker (9:14)
Community Banking Panel Question and Answer Period (1:04:29)
Julie Stackhouse, Closing Remarks (11:13)

Conference of State Bank Supervisor