The impact of European bank mergers on bidder default risk

Francesco Vallascas, Jens Hagendorff

Research output: Contribution to journalArticlepeer-review


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. (C) 2010 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)902-915
Number of pages14
JournalJournal of Banking and Finance
Issue number4
Publication statusPublished - Apr 2011


  • Banks
  • Mergers
  • Default risk
  • Europe


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