Date of Degree


Document Type


Degree Name





Gayle DeLong

Committee Members

Sonali Hazarika

Jian Hua

Karl Lang

Subject Categories

Corporate Finance | Finance and Financial Management


M&A, bank acquisitions, systemic risk, systemic risk-shifting, diversifying mergers, focusing mergers, merger value, source of systemic risk, operational risk


This dissertation consists of two chapters on bank acquisitions and systemic risk.

Chapter 1: This chapter explores whether bank acquisitions are associated with systemic risk-shifting. Acquisitions can form larger and more diversified firms and, as such, increase the correlation of the acquirer's investment with other banks and subsequently the probability of their joint failure. This can be beneficial for the acquirer due to (implicit) government ``too-many-to-fail'' guarantees. I find that bank acquisitions on average lead to an increase in acquires' systemic risk, which is in turn associated with an increase in firm value for non-distressed acquisitions. Interestingly, congruent with the concept of ``availability'' in behavioral finance, this usually favorable market reaction to acquisition-induced increase in acquirers' systemic risk turns into a significantly unfavorable one during crisis periods as investors perceive a higher probability for tail events. I then, classify acquisitions into activity diversifying and focusing to explore whether diversification is the mechanism for systemic risk-shifting. I find that diversifying acquisitions that lead to an increase in the systemic risk contribution of acquirers are associated with higher acquisition announcement abnormal return for acquirers' shareholders. Additionally, I find that diversifying acquisitions with relatively well-performing acquirers exhibit higher degrees of systemic risk-shifting, regardless of value creation. Overall, I put forward a potential incentive for diversifying acquisitions, namely, systemic risk-shifting. These findings can bring value to banking supervisors by identifying acquisitions with more likelihood of threatening financial stability.

Chapter 2: This chapter explores the source of systemic risk in financial institutions. I utilize an aggregate measure of systemic risk and show that the operational risk component drives systemic risk exposure and impacts future macroeconomic conditions. The operational risk component of aggregate systemic risk forecasts economic downturns up to 12 months into the future while the non-operational component has no predictive power. Operational risk is measured as the residual risk remaining after accounting for market and credit risk in equity returns.