The impact of European bank mergers on bidder default risk

Vallascas, Francesco and Hagendorff, Jens ORCID: https://orcid.org/0000-0002-3567-7826 2011. The impact of European bank mergers on bidder default risk. Journal of Banking & Finance 35 (4) , pp. 902-915. 10.1016/j.jbankfin.2010.09.001

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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.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
Publisher:	Elsevier
ISSN:	0378-4266
Date of First Compliant Deposit:	30 March 2016
Last Modified:	08 Nov 2023 02:37
URI:	https://orca.cardiff.ac.uk/id/eprint/76285

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