M&As and Equity Risk in the EMU Financial Sector

Over the past decade mergers and acquisitions in the financial sector have been very frequent. In Europe the pace of M&As has been rapid. This process has been driven by the consolidation of market-oriented policies in the EU member countries, as well as by the expansion of the common market environment and the introduction of the euro since 1999. The opening of new markets in former Communist countries has also played a prominent role.We survey a large, comprehensive and original list of M&A operations concluded from 1997 to 2007 by banks and insurance companies from EMU countries; a selection of exchange-listed firms is then examined to assess whether M&As changed the market risk profile of the acquirers, and to investigate whether any variations can be traced to the cross-border or cross-industry character of the operation. To this purpose, we first estimate market risk differentials between different segments of the financial sector and across EMU countries over several different periods of the decade, and make an assessment of the opportunities for risk reduction. Then, we use daily data to estimate market risk for individual acquirers before and after the completion of M&A operations and we test for any variations induced by the characteristics of the deal.