Do Domestic M&As Impact Bank Risk Profiles? The Case of Spanish Banks

34 Pages Posted: 31 Aug 2013

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Jens Hagendorff

University of Edinburgh - Business School

Maria Nieto

Banco de España

Date Written: August 19, 2013

Abstract

While there is some evidence on the impact of international M&As on bank risk profiles, there is a paucity of research on the impact of domestic M&As on bank risk. This paper exploits a rich database of Spanish banks during 1986-2010 to study the changes in bank risk profiles immediately before and after domestic M&As based on different ex ante and ex post measures of risk. Our results control for potential selection bias and show that, for acquiring banks, size and capitalization are important drivers of risk changes before and after M&As. For target banks, we find that target banks that received financial support from the government in the context of M&As showed a statistically significant increase in risk-taking before but not after a deal compared to all other banks. Overall, our results indicate that bank size, leverage and government support have not caused banks to engage in additional risk-taking via M&As. However, changes to banks' funding and income mix are linked to higher risk-taking. Our results therefore emphasize the need for increased supervisory scrutiny of the sources of bank funding and income of merging banks.

Keywords: banks, mergers, Spain

JEL Classification: G21, G34

Suggested Citation

Carbo-Valverde, Santiago and Hagendorff, Jens and Nieto, Maria J., Do Domestic M&As Impact Bank Risk Profiles? The Case of Spanish Banks (August 19, 2013). Available at SSRN: https://ssrn.com/abstract=2318142 or http://dx.doi.org/10.2139/ssrn.2318142

Santiago Carbo-Valverde

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

Jens Hagendorff (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

Maria J. Nieto

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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