Title: Mergers and risk
Description: "This paper examines the impact of mergers on default risk, finding that, on average, a merger increases the default risk of the acquiring firm.  This is surprising for two reasons: risk reduction is among the reasons commonly cited for mergers, and asset diversification should reduce default risk unless the newly-merged firm takes some action to increase risk.  We associate the risk increase with mergers satisfying one of a trifecta of conditions related to agency problems: mergers financed with stock, acquirers with a high market- to-book ratio, and acquirers with poor stock price performance prior to a merger announcement.  We also demonstrate higher levels of default risk are not accompanied by higher post- merger returns"--Federal Reserve Bank of Chicago web site.
Subjects: Consolidation and merger of corporations, Risk management