Journal of Banking & Finance Vol. 35 No. 4 2011
The impact of European bank mergers on bidder default risk
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.
- DOI
- 10.1016/j.jbankfin.2010.09.001
- Volume
- 35
- Issue
- 4
- Pages
- 902-915
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib