Do Domestic M&As Impact Bank Risk Profiles? The Case of Spanish Banks
34 Pages Posted: 31 Aug 2013
Date Written: August 19, 2013
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: Suggested Citation