Bank Mergers and Lending Relationships
56 Pages Posted: 22 Sep 2008
Date Written: September 22, 2008
This paper analyzes the effects of bank mergers on bank-firm relationships. Using matched bank-firm level data, I find that mergers disrupt lending relationships, specially to small borrowers of target banks. However, I find significant positive effects of mergers for borrowers that continue the lending relationship with the consolidated bank. On average, consolidated banks reduce loan interest rates. The most beneficial mergers from the borrower point of view are those involving two large banks and commercial banks. While the reduction in interest rates is larger when the acquirer and the target have some market overlap, the decline is much smaller when there is a significant increase in local banking market concentration.
Keywords: Banking consolidation, Lending relationships, Small business lending
JEL Classification: G21, G34
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