Credit Risk, Bank Valuation, and the Moderating Role of Mergers and Acquisitions: Evidence from European and UK Banks

This study examines how credit risk affects bank valuation and whether mergers and acquisitions (M&A) moderate this effect, using a panel of 102 listed Eurozone and UK banks from 2004 to 2024. Applying MM-quantile regression, we find that credit losses reduce valuation across all quantiles, especially for low-valued banks. M&A activity boosts valuation mainly for high-valued banks, while for weaker banks, acquisitions exacerbate the negative impact of credit deterioration. Robustness checks confirm these results. Our findings highlight that credit risk and consolidation have heterogeneous effects, suggesting that supervisory policies should consider banks’ market positions and distributional risk dynamics.