The Impact of Non-Bank Lending on Mergers and Acquisitions

Abstract:     
Evidence shows that non-banks, which are now significant participants in the corporate loan market, exploit information gained from lending to trade in public securities. We ask whether these lenders also use private information from the same source to facilitate merger and acquisition (M&A) deals. We find that a firm is 3.5% more likely to become a target in the following two years if it has borrowed from non-banks rather than banks during the past four years. The effect of non bank lending on M&A is stronger when non-banks act as arrangers in loan syndication and when they gain updated information during the loan amendment process. We also find that bidders pay lower premiums for targets when non-banks participate in prior loans to targets.

Number of Pages in PDF File: 63

Keywords: Nonbank lending, Syndicated loans, Mergers and acquisitions, private information

JEL Classification: G10, G20, G23, G24, G34

working papers series