The effect of mergers on US bank risk in the short run and in the long run

Brealey, R A, Cooper, I A and Kaplanis, E (2019) The effect of mergers on US bank risk in the short run and in the long run. Journal of Banking and Finance, 108. ISSN 0378-4266 OPEN ACCESS


We examine changes in risk following US bank mergers in the period 1981-2014. Short-run (two-year) increases in acquirer risk following mergers occur only in the first few mergers undertaken by the same acquirer, not in the later ones. They occur only in the stocks’ sensitivity to banking industry risk and not in bank-specific risk. The equity volatility of acquirers does not increase, but diversification benefits are entirely dissipated. Using a new approach to measure the long-run effect we find that these results persist, consistent with banks maintaining a constant level of total equity risk in the long run. We measure the loss of diversification of the US bank industry associated with mergers and find it to be 40% of the risk level in 1981. Almost all of this occurred prior to 2004. In addition, there has been a large increase in correlations between the largest banks, much of which has come from sources other than mergers.

More Details

Item Type: Article
Subject Areas: Finance
Additional Information:

© 2019 Elsevier

Date Deposited: 26 Sep 2019 10:29
Date of first compliant deposit: 26 Sep 2019
Subjects: United States
Commercial banks
Mergers and acquisitions
Last Modified: 29 Sep 2023 00:42

Export and Share


Accepted Version - Text


View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item