Risk governance & control: financial markets & institutions / Volume 5, Issue 2, 2015 52 MERGERS, LIQUIDATIONS AND BANKRUPTCIES IN THE EUROPEAN BANKING SECTOR Themistokles Lazarides*, Evaggelos Drimpetas**, George Kyriazopoulosr*** Abstract The inactivity of banks may be the result of a number of events, such as merger & acquisition (M&A), liquidation, default-bankruptcy, etc. All these phenomena of inactivity contribute to the same result, the reform of the European banking sector and they may have the same causes. The paper will address the issue of inactivity and will try to detect its causes using econometric models. Six groups of indicators are examined: performance, size, ownership, corporate governance, capital adequacy or capital structure and loan growth. Three econometric methods (Probit, Logit, OLS) have been used to create a system that predicts inactivity. The results of the econometric models show that from the six groups of indicators, four have been found to be statistically important (performance, size, ownership, corporate governance). Two have a negative impact (ownership, corporate governance) on the probability of inactivity and two positive (performance, size). The paper’s value and innovation is that it has given a systemic approach to find indicators of inactivity and it has excluded two groups of indicators as non-statistically important (capital adequacy or capital structure and growth). Keywords: Mergers, Liquidations, Bankruptcy, Banks, Europe Acknowledgments This research has been co‐financed by the European Union (European Social Fund – ESF) and Greek national funds through the Operational Program "Education and Lifelong Learning" of the National Strategic Reference Framework (NSRF) ‐ Research Funding Program: THALES. Investing in knowledge society through the European Social Fund 1. Introduction The European banking sector has gone to a transformation during the last two (2) decades. The origin of the transformation is common (deregulation and legal isomorphism, product inflation and complexity, stock market development) to both sides of the Atlantic, but in Europe it has some unique characteristics. Europe is diverse and the banking system across Europe hasn’t the same characteristics (ownership, legal framework, etc.) and path of development (in some countries there are a large number of banks while in other only a few). The inactivity can take many forms or has many causes (merger & acquisition (MA), liquidation, default-bankruptcy , etc.). All these phenomena of inactivity contribute to the same result, the reform of the European banking sector and they may have the same causes. Having in mind the diversity of the European banking system, many scholars have argued that there is convergence trend in Europe (Casu and Girardone, C., 2010; Murinde, Agung and Mullineux,, 2004; Schmidt, Hackethal and Tyrell, M., 2001) and other countries (Brau, Dahl, Zhang, and Zhou, M., 2014). The basic argument is the convergence on the legal – regulatory system of Europe. Others (Rughoo and Sarantis, 2014; Gibson and Tsakalotos, 2013; EUROPEAN CENTRAL BANK, 2012; Busch, 2002) challenge this hypothesis. The complexity and diversity of the European banking system (each country’s banking system has its unique characteristics) is still a fact that all scholars should take into account. Legal and regulatory convergence doesn’t seem to have the necessary power to drive the European banking system to an isomorphic state. The paper addresses the issue of inactivity while taken into account the different causes of inactivity and the differences of the corporate governance, legal and economic system of the counties that are studied. A number of regressions will be presented to show these differences and the formulating factors in each significant case.