Bank-Firm Relationships in the post-crisis economy

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Banks entering into a mega-bank enjoy large and highly statistically significant excess returns. However, the size of the merger does not seem to affect longer-term measures of performance. Using synthetic control method, we are able to conduct difference-in-difference analysis and find that acquiring banks become statistically significantly less profitable, less solvent, and more inefficient after a merger event than the control group. These findings suggest that the benefits accruing to shareholders of mega-merger banks are not due to newly created business synergies, but perhaps a "flight-to-safety" on the part of shareholders.