Bank Acquisitions and Decentralization Choices

31 Pages Posted: 19 Jul 2012

See all articles by Enrico Beretta

Enrico Beretta

Bank of Italy

Silvia Del Prete

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: February / July 2012

Abstract

In this paper, we investigate whether the banks’ involvement in acquisitions is correlated with the distribution of decision‐making powers across hierarchical levels and loan officers’ turnover. To this end, we use survey data on the organization of small business lending, collected at the end of 2006 on a sample of about 300 Italian banks, combined with balance sheet data drawn from the Bank of Italy's Supervisory Reports. Focusing on acquisition effects and controlling for size, performance and organizational characteristics, we find evidence of higher decision‐making powers in granting credit to SMEs for the main hierarchical layers of acquired banks. In particular, the powers of both the branch loan officer and the Chief Executive Officer are larger for target banks recently involved in a deal. Entering a group moves power delegated to both ends of the hierarchy within the target bank towards the higher levels shown by the bidder, to merge different cultures and credit policies. This effect appears immediately after the deal; it is persistent after a three‐year period and it is stronger if the geographical reach of the target bank is well known by the bidder. However, higher decisional lending power within the target bank is balanced by increasing branch managers’ turnover consistently with the rising monitoring costs due to growing organizations’ higher risk of losing control over decisions.

JEL Classification: G21, G34, L22

Suggested Citation

Beretta, Enrico and Prete, Silvia Del, Bank Acquisitions and Decentralization Choices (February / July 2012). Economic Notes, Vol. 41, Issue 1‐2, pp. 27-57, 2012. Available at SSRN: https://ssrn.com/abstract=2112798 or http://dx.doi.org/10.1111/j.1468-0300.2012.00237.x

Enrico Beretta

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Silvia Del Prete

affiliation not provided to SSRN

No Address Available

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