All that Glitters is Not Gold! Could M&As Post‐Bank Reforms be Just a Tool for Balance Sheet Embellishment?

Abstract This study investigates whether the surge of mergers and acquisitions (M&As) that occurred in Italy after the enactment, in 2016, of a new reform of credit cooperative banks (CCBs) ultimately improved their performance. Worldwide, CCBs have proved to play a crucial role in spurring local economic development. With the adoption of a dataset composed of 594 Italian banks and 3933 bank‐year observations from 2008 to 2020, our results show a positive and significant impact of the 2016 reform on M&As among CCBs. However, contrary to the expectations of regulators, our results highlight a puzzling deterioration in bank stability of the CCBs involved in M&As, with no relevant improvement in capitalization and profitability, reinforcing the view that bigger is not always better, at least in the context of CCBs. Our evidence sheds light on the perils underlying a massive consolidation process of local banking industries, calling for a regulatory recalibration and further research investigating the impact of different growth models capable of preserving the diversity and unique characteristics of banks, rather than pursuing a ‘one‐size‐fits‐all’ model.