Merger Activity as a Determinant of De Novo Entry into Urban Banking Markets
The increase in both the number of bank (and thrift) mergers and the number of de novo entries has led the press to speculate that these trends are interrelated. Specifically, the media have suggested that out-of-market acquisitions encourage de novo entry. This paper examines the determinants of de novo entry at the individual market level and specifically tests the hypothesis that "out-of-market acquisitions lead to de novo entry into that market." This study differs from the earlier literature on the determinants of de novo entry in several respects: (1) Banks and thrifts are treated as full competitors and included in the empirical work. (2) The time frame examined is 1995-1998, a period of record earnings for banks and thrifts. (3) The data for new charters have been scrubbed so those only ?true? de novo entrants are included in the empirical work. A theoretical framework for de novo entry is developed, and logical analysis is applied to all MSAs for the four-year period.