The impact of M&As on bank risk in Spain (1986-2007)

Abstract

Our article presents the short term changes in bank risk profiles before and after domestic banks M&As that took place before the present crisis (1986-2007) based on different exante 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 immediately 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.