Mergers and Acquisitions’ Moderating Effect on the Relationship Between Credit Risk and Bank Value: A Quantile Regression Approach

Ra’fat Jallad (), Ahmad Tina and Antonios Persakis
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Ra’fat Jallad: Department of Finance, Faculty of Business and Communication, An-Najah National University, Nablus P.O. Box 7, Palestine
Ahmad Tina: Department of Finance, Faculty of Business and Communication, An-Najah National University, Nablus P.O. Box 7, Palestine
Antonios Persakis: Department of Accounting and Finance, School of Economics and Business Administration, University of Thessaly, Gaiopolis Campus, 41500 Larissa, Greece

JRFM, 2025, vol. 18, issue 2, 1-22

Abstract: This research explores the relationship between credit risk and bank value within the framework of horizontal mergers and acquisitions (M&A), employing a quantile regression approach to analyze how horizontal M&A activities moderate this relationship across 110 operational Bank Holding Companies (BHCs) over 23 years. This paper stands out from previous studies by extending the scope beyond linear approaches and using the Quantiles via Moments estimator to address potential endogeneity concerns. The results demonstrate a significant negative link between credit risk and bank value, which decreases in magnitude as moving higher in the value distribution. Conversely, there is a consistent positive connection between M&A activities and bank value that is stable across different quantiles of value. Mergers and acquisitions worsen the negative impact of credit risk on bank value, affecting banks with both low and high values similarly. The findings provide useful information for investors, practitioners, and policymakers in the banking industry. Investors may use credit risk and value proposition assessments to make well-informed investment decisions, or to construct well-diversified portfolios, and identify appropriate institutions for mergers and acquisitions to enhance value. It is recommended that practitioners prioritize efficient credit risk management, especially before engaging in M&A activities and aligning them with the bank’s value proposition. Policymakers should develop guidelines to regulate M&A transactions, using established dynamic credit risk standards that correspond to banks’ value propositions, to promote financial stability and drive industry expansion.

Keywords: bank value; credit risk; M&A; moderating effect; quantile regression (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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