The impact of bank mergers and acquisitions on institutional risk: evidence from the Latin American market

Abstract

This work project investigates the effect of bank consolidations on their idiosyncratic risk using the example of 218 transactions between 1998 and 2017 in Latin America. As a risk measure serves the bank z-score. The results show that banks gain stability through M&A with Latin American competitors. Furthermore, an OLS analysis with Huber-White robust standard errors reveals factors which influence the development of bank z-score through the consolidation. Product diversification and the relative size between acquirer and target increase the acquirer’s stability, while its liquidity, net interest income and the integration of a publicly listed target have a destabilizing effect.