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Can mergers in Europe help banks hedge against macroeconomic risk?

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  • Pierre-Guillaume Meon
  • Laurent Weill

Abstract

This study investigates the motive of geographic risk diversification in the lending activity for bank mergers in the EU on a sample of large banking groups. Geographic diversification should allow banks to reduce their risk. It is observed that the loan portfolios of European banks are home-biased. The portfolio approach is applied to explore the risk-return efficiency of the locations of banks' activities. Mergers between pairs of banks are also studied. Evidence of the sub-optimality of the loan portfolios of European banks in terms of geographic risk diversification, and of the existence of potential gains from inter-country pair mergers is also provided.

Suggested Citation

  • Pierre-Guillaume Meon & Laurent Weill, 2005. "Can mergers in Europe help banks hedge against macroeconomic risk?," Applied Financial Economics, Taylor & Francis Journals, vol. 15(5), pages 315-326.
  • Handle: RePEc:taf:apfiec:v:15:y:2005:i:5:p:315-326 DOI: 10.1080/0960310042000323629
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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