The impact of European bank mergers on bidder default risk

Francesco Vallascas and Jens Hagendorff

Journal of Banking & Finance, 2011, vol. 35, issue 4, 902-915

Abstract: We analyze the implications of European bank consolidation on the default risk of acquiring banks. For a sample of 134 bidding banks, we employ the Merton distance to default model to show that, on average, bank mergers are risk neutral. However, for relatively safe banks, mergers generate a significant increase in default risk. This result is particularly pronounced for cross-border and activity-diversifying deals as well as for deals completed under weak bank regulatory regimes. Also, large deals, which pose organizational and procedural hurdles, experience a merger-related increase in default risk. Our results cast doubt on the ability of bank merger activity to exert a risk-reducing and stabilizing effect on the European banking industry.

Keywords: Banks; Mergers; Default; risk; Europe (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (46)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:4:p:902-915

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