The Safety and Soundness Effects of Bank M&A in the EU
39 Pages Posted: 31 Jan 2011 Last revised: 4 Jul 2014
Date Written: January 24, 2011
This paper studies the impact of European bank mergers and acquisitions (M&A) on changes in key safety and soundness measures of both targets and acquirers.Our focus is on the short term impact after completion of the deal. We find a consistent, strong tendency towards post-merger mean reversion for the acquirer’s capital, liquidity and earnings two years after a deal. Further, we find evidence of weaker mean reversion for the target’s capitalization and liquidity over the same time period. We also find that European bank mergers strengthen target capitalizations at the expense of the acquirer’s capitalization. However, supervisory practices have a positive impact on merger-related changes in bank profitability and capitalization for both acquiring and target banks. Our results do not preclude other effects on capitalization, liquidity and profitability in the medium and long term as a result of managerial changes in strategy.
Keywords: banks, mergers, performance, capital, liquidity, Europe
JEL Classification: G21, G34, G28
Suggested Citation: Suggested Citation